A Technological Approach to Reforming Japan's Consumption Tax
Richard Thompson Ainsworth
NYU - Graduate Tax Program; Boston University - School of Law
December 13, 2013
Boston Univ. School of Law, Law and Economics Research Paper No. 13-56
Significant change has been forecast for the Japanese Consumption Tax. Revenue needs are pressing, and the Consumption Tax appears to be underutilized. Should the rate be doubled from 5% to 10%, or more? If so, will rate increases necessitate further structural changes – recasting this annual credit-subtraction levy into a European style credit-invoice VAT? These options have not proven to be politically palatable, but they are directions that have been under active consideration.
On October 1, 2013 the Japanese Cabinet Office announced that the Consumption Tax would rise from 5% to 8% effective April 1, 2014. The rate will increase again to 10% on October 1, 2015. Details will be incorporated into the 2014 budget, and the expectation is that the tax increase will be offset by investment incentives. The reforms should be based on the Tax Reform Proposal to Stimulate Non-governmental Investment drafted by the Liberal Democratic Party Tax Commission. If this proposal goes forward Japan’s Consumption Tax would remain largely unchanged. The suggestions to move toward a European VAT will be rejected.
Although the tax rate increase to 8% may not be difficult to implement, the further increase to 10% may necessitate some exemptions for the elderly and handicapped. This paper proposes technology-based solutions.
Number of Pages in PDF File: 22
Keywords: VAT, Consumption Tax, CT, Japan, SSUTA, Streamlined Sales Tax, Biometrics, Exemption, Tax Reform, Digital VAT, D-VAT
JEL Classification: E62, H20, H21, H29, K34
Date posted: December 14, 2013