Japan postpones sales tax until 2019

Prime Minister Shinzo Abe has delayed sales tax increase until October 2019. The tax increase was initially scheduled for next April, raising tax rate from 8% to 10%, except for extraordinary circumstances such as the Lehman Brothers banking collapse or the 2011 earthquake.

Prime Minister Abe’s earlier decision to delay tax increase was in October 2015 due to recession and low consumption power. His Abenomics reform package has not brought about expected outcomes, leading to further delay in tax increase to prevent deflation. 

However, the tax delay may tarnish Japanese international image in the eyes of investors. The tax increase aims to ensure budget surplus by 2020. Opposition political activists have asked the Prime Minister to resign if he fails to raise tax as scheduled.

The tax delay inflated fear as Japan’s public debt was two and a half times higher than its GDP. This has contracted revenues and limited spending on social welfare in the aging population.

Mr Abe’s government has confirmed its intention to ensure budget surplus by 2020 to lower public debt to less than twice the size of Japanese GDP. This target remains a major challenge for Shinzo Abe and his government.