Japan panel: tax hikes needed for revenue boost

(For more stories on the Japanese economy, click [ID:nECONJP])

TOKYO, June 22 (BestGrowthStock) – Japan needs tax reform that will
lead to a “considerable” increase in revenue as welfare spending
is rising and the work force is declining due to an ageing and
shrinking society, a government panel said on Tuesday.

It did not say by how much Japan should raise taxes.

But it said the sales tax, now 5 percent, will play an
important role in tax reform as it allows the burden of social
security spending to be spread broadly, though it stopped short
of saying sales tax revenue should be devoted solely to welfare
spending.

Prime Minister Naoto Kan has said doubling the sales tax rate
is an option to avoid the type of sovereign debt crisis that has
roiled Greece. Japan will announce later on Tuesday a plan to
lower its debt burden, which is the worst among industrial
nations at almost twice the size of its economy.

Ratings agency Fitch has warned that Japan’s credit rating
will come under downward pressure unless it has a credible plan
to repair its finances by the end of the year. [ID:nTOE65K03X]

“We are certainly very conscious of the problems with the
welfare system,” said Naohiko Jinno, head of the finance
ministry’s tax panel.

“Our message is that the sales tax and income tax both have
their roles to play.”

Japan’s public finances are in a crisis-like state and if
neglected it could lead to a loss in market trust and a spike in
bond yields similar to what has occurred in European countries,
the tax panel said in the mid-term report.

The panel has yet to set a deadline for its final report,
Jinno said. It could take the government two to three years to
implement a sales tax hike, Kan said on Monday.

The government should improve progressive tax rates on
incomes and send a strong message that the wealthy will have to
bear a larger burden, the report said.

Tax reform can strengthen the social safety net, which in
turn can promote household spending and strengthen the economy,
the panel said.

The government should also introduce measures to broaden the
tax base if it decides to lower the corporate tax rate, according
to the panel.

Stock Report
(Reporting by Stanley White)

Japan panel: tax hikes needed for revenue boost