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The Political History of the Consumption Tax
[2018.10.31]

Prime Minister Abe Shinzō has announced that in October 2019 consumption tax will rise from the current rate of 8% to 10%. This planned hike has previously been postponed twice during Abe’s administration. Here we reflect on the circuitous history of consumption tax policy in Japan.

At an extraordinary cabinet meeting on October 15, 2018, Prime Minister Abe Shinzō announced that the consumption tax rate will rise from 8% to 10% in October 2019. Although this tax increase has been postponed twice, he now deemed it necessary. Japan is at the forefront of the world’s aging populations and Abe stated that the hike will help to cover the growing costs of social security, including for medical and elderly care, and fund free preschool education for all, and free higher education for disadvantaged students.

There will be a split rate for the first time in the history of the tax, introduced in 1989. The current rate of 8% will still apply for food products (excluding dining out and alcohol). In order to balance out the economic impact connected with an increase in the rate, support will be made available in the form of tax cuts and subsidies for housing, cars, and other large consumer durable goods. Small and mid-size retailers are also expected to award reward points equalling the 2% increase on purchases made by credit card or similar non-cash payments to alleviate a decrease in consumer demand.

The Political History of the Consumption Tax

January 1979 Prime Minister Ōhira Masayoshi’s administration decides to implement a general consumption tax to improve public finances, but abandons the plan in the face of a severe public backlash in the October general election.
February 1987 The administration of Prime Minister Nakasone Yasuhiro submits a draft sales tax bill to the Diet, but abandons the bid in May due to widespread public opposition.
December 1988 A consumption tax bill is passed under the administration of Prime Minister Takeshita Noboru.
April 1989 A 3% consumption tax is introduced. Soon after, in June, Prime Minister Takeshita is forced to resign in the wake of an insider-trading and corruption scandal involving the human-resource company Recruit.
February 1994 A plan to abolish the consumption tax and introduce a 7% national welfare tax is announced; however, the plan is withdrawn the day after its announcement due to a lack of coordination within the coalition government led by Prime Minister Hosokawa Morihiro.
November 1994 During Prime Minister Murayama Tomiichi’s administration, the Diet passes a bill to hike the consumption tax rate from 3% to 4% and add a regional consumption tax of 1%, bringing the total to 5% in 1997.
April 1997 The consumption tax rate is raised to 5% under Prime Minister Hashimoto Ryūtarō.
September 2009 The Democratic Party of Japan, led by Hatoyama Yukio, is elected to power on an election manifesto pledging no consumption tax hikes for four years.
June 2010 After Kan Naoto takes over leadership of the DPJ, just prior to the upper house election, the party announces the consumption tax will be increased to 10%; the DPJ suffers a crushing defeat in the election.
June 2012 The government of Prime Minister Noda Yoshihiko introduces a bill to raise the consumption tax rate to 8% in 2014 and to 10% in 2015. On August 10, the upper house plenary session approves the bill.
April 2014 The tax rate rises to 8% during the administration of Prime Minister Abe Shinzō.
November 2014 Prime Minister Abe announces that the scheduled hike to 10% will be postponed by 18 months, from October 2015 to April 2017.
June 2016 Following deliberations within his Liberal Democratic Party and the ruling coalition, Prime Minister Abe announces another postponement of the tax hike; the rate will rise to 10% two and a half years later, in October 2019.
October 2018 Prime Minister Abe announces that the tax rate will rise to 10% in October 2019. However, it will remain at 8% for food products (excluding dining out and alcohol).

(Originally published on September 28, 2012; updated on June 1, 2016; further updated on October 31, 2018.)

  • [2018.10.31]
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