July 27, 2020

Akahata editorial (excerpts)

Amid a severe economic downturn triggered by the coronavirus pandemic, various countries lowered their value-added tax rates. The aim for this measure is to stimulate consumption and support adversely affected industries. According to data compiled by the Seattle-based international tax service firm Avalara, around 20 countries in Europe, Central and South America, and Asia reduced VAT rates.

Germany on July 1 implemented a measure to lower the regular VAT rate from 19% to 16% for six months until the end of the year. In addition, the reduced tax rate which is applied to certain goods and services was decreased from 7% to 5%. The U.K. on July 15 started a policy of lowering the VAT rate for food service, hotel, and entertainment industries from 20% to 5% until January 12 next year.

An analysis by Japan’s private thinktank Dai-Ichi Life Research Institute shows that if Japan introduces an across-the-board reduced tax rate for all items with a time limit of six months, this measure would create greater economic effects than the ongoing “Go To” travel subsidy campaign.

The rates and systems of VAT or consumption tax vary depending on the country. However, it is clear that many nations consider tax cuts as a key measure to fight the serious recession caused by the coronavirus crisis.

OECD Secretary-General Angel Gurría in March cited temporary VAT reductions or deferrals as an option for urgent measures, when calling on countries in the world for joint actions to combat the coronavirus crisis.

In Japan, as the consumption tax rate was increased to 8% in April 2014 and to 10% in October 2019, the nation’s economy had already deteriorated before the pandemic hit the nation. To lower the consumption tax rate is vital not only to overcome the COVID-19 crisis but also to rebuild the economy.

A decrease in the consumption tax rate is an effective policy that will benefit lower-income families and give support to small- and medium-sized enterprises. However, Prime Minister Abe Shinzo in an interview in the September issue of the monthly magazine Hanada said, “Regarding a consumption tax cut, I have no intention to take that measure”, refusing to rethink his negative stance. Compared with governments of other countries, the Japanese government refuses to even consider a decrease in the sales tax rate. It should change its stance and decrease the consumption tax rate to 5%.

Past related articles:
> Anti-consumption tax group is urging gov’t to cut sales tax as economic stimulus to combat pandemic [July 7, 2020]
> JCP makes urgent proposal on economic crisis pertaining to coronavirus outbreak [March 13, 2020]