TAX NEWS - June 2010

Japan Tax: Japan PM eyes 10 pct sales tax in party policy shift

Japanese Prime Minister Naoto Kan said on Thursday that doubling the 5 percent sales tax was an option to curb the country's massive debt, as his Democratic Party shifted its platform gears ahead of a July 11 election.

Kan, who has made fiscal reform a top priority since taking office last week, also said he would map out the size of a future sales tax hike by the end of the fiscal year to March 31, 2011.

The premier declined comment on when a tax rise might be implemented, but Democratic Party policy chief Koichiro Genba said the earliest timing technically would be autumn 2012, adding corporate tax cuts to boost competitiveness could come first.

The Democrats ousted their long-dominant conservative rivals in a historic general election last year, promising to cut waste and focus spending on households to spur growth.

But Europe's debt woes have fanned concern about a Japanese public debt already twice the size of the economy, and voters, worried about creaking pension and health care systems, have become less resistant to a sales tax rise.

"To be honest, we as politicians wish we could avoid asking the people to shoulder more of a tax burden," Kan told a news conference.

"Jitters in Europe stemming from the financial collapse of Greece are no longer somebody else's problem."

He added that an opposition proposal to raise the tax to 10 percent was "one major reference point".

In a manifesto for the upper house election, the Democrats called for multi-party debate on drastic tax reform including the 5 percent sales tax, opening the door to a future tax hike the Democrats are betting worried voters will accept, if not welcome.

"Public opinion is in favour of changing the manifesto to make it more practical," DPJ senior lawmaker Hajime Ishii told Reuters. "I think what the people want is to achieve healthy finances in the next five to 10 years."