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HOME  > Past issues  > 2020 December 23 - 2021 January 5  > State finance becomes more dependent on sales tax revenues
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2020 December 23 - 2021 January 5 [POLITICS]

State finance becomes more dependent on sales tax revenues

December 24, 2020
Consumption tax revenues are becoming a dominant player in government income as a result of the repeatedly revised tax system. Data from the Finance Ministry show that in fiscal year 1989 when the consumption tax was introduced, this tax system brought in revenues of 3.3 trillion yen, making up 6% of the total tax revenue of 54.9 trillion yen. In the 2021 budget draft, sales tax revenues are estimated at 20.2 trillion yen which accounts for 35.3% of government tax revenues.

The amount of sales tax revenues has been increasing in accordance with increases in the tax rate. In 1989, the consumption tax was introduced at the rate of 3%. The tax rate was increased to 5% in April 1997, to 8% in April 2014, and to 10% in October 2019. Despite rising consumption tax income, the amount of government revenues has seen sluggish growth. In the 2021 budget, the total tax revenue is calculated at 57.4 trillion yen, almost the same as the 1989 level. This is because the consumption tax hike has led to a slowdown in Japan’s economic growth, which resulted in a decrease in revenues from taxes on corporate profits and individuals’ income. In addition, tax-cut measures have been provided to the rich and large corporations.

Under a situation where the ongoing resurgence of COVID-19 is imposing financial hardships on the general public and smaller businesses, the lowering of the consumption tax rate is a pressing task. At the same time, it is also necessary to change the state revenue structure which relies heavily on the regressive tax system to one based on the “ability to pay” progressive taxation principle.

Past related articles:
> 90% of general public in survey call for lowering consumption tax rate [May 20, 2020]
> Koike: GDP drop caused by consumption tax hike to 10% [February 18, 2020]
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