Japan Press Weekly

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2016 August 3 - 9 [ECONOMY]

Increase in dependence on consumption tax revenue will lead to ‘hollowing out’ of national finance foundation

Since the consumption tax was introduced about three decades ago, the share of the consumption tax revenue to the total national tax revenue has increased.

The consumption tax rate was 3% in 1989 when the tax was first introdued. With this rate, the tax raised around 6-10% of the national tax revenue.

The government increased the tax rate to 5% in 1997. The amount of revenues from the consumption tax then expanded to almost the same as that from corporate taxes and made up more than 20% of the total tax revenue.

The consumption tax rate again went up to 8% in 2014. The amount of consumption tax revenue exceeded that of corporate taxes and got close to that of income taxes, and accounted for nearly 30% of the total.

The percentage of the consumption tax revenue has grown not only because the tax rate was raised, but also because the government reduced tax burdens on the wealthy and large businesses.

The maximum income tax rate fell from 50% in 1989 to 37% in 2000. The current rate is 45%.

The effective corporate tax rate, which is the actual tax burden on corporate profit (corporate tax, corporate residents’ tax, and enterprise tax), was decreased from 50% in 1989 to 29.97% in 2016. The Abe government plans to further lower the rate to 29.74% in 2018.

The government imposed increasingly higher consumption tax rates on the general public and decreased the tax burdens on the wealthy and major corporations, which goes against the ability-to-pay principle and will lead to a “hollowing out” of the foundation of national finance.