Costa Rica - Law No. 4961 on Tax Reform, Selective Consumption Tax - National
The History and Development of the Consumption Tax policy in …€¦ · First consumption tax rate...
17
SECOND MEETING OF THE OECD GLOBAL FORUM ON VAT April 2014 The History and Development of the Consumption Tax policy in Japan Hidemasa Nakamura Director for Coordination Division, Tax Bureau, Ministry of Finance, Japan
Transcript of The History and Development of the Consumption Tax policy in …€¦ · First consumption tax rate...
SECOND MEETING OF THE OECD GLOBAL FORUM ON VAT
April 2014
The History and Development of the Consumption Tax policy in Japan
Hidemasa Nakamura Director for Coordination Division,
Tax Bureau, Ministry of Finance, Japan
Outline
Fiscal situation and the role of the consumption tax in Japan
History of the consumption tax policy Introduction of the consumption tax (1989)
First consumption tax rate hike (1997)
Second consumption tax rate hike(2014)
Future steps
Questions
2
Trends in General Account Tax Revenues, Total Expenditures and Government Bond Issues
3
2.1 3.5 4.5 4.3 6.3 7.2 5.9 7.0 6.7 6.4 6.0 5.0 2.5 1.0
0.2 0.8 2.0
9.2 8.5
16.9
24.3 21.9 20.9
25.8 28.7 26.8
23.5 21.1 19.3
26.2
36.9 34.7 34.4 36.0 35.8 35.2
3.2 3.7
5.0 6.3 7.1 7.0
7.0 7.0 6.8 6.4 6.3 6.2
6.9 6.2 6.4 6.3 6.7
9.5
16.2 12.3
16.4
10.7 9.9
17.0
13.2
11.1 9.1
9.1 6.7 8.7
7.8
6.4 6.0
7.0
15.0
7.6 8.4 11.4 7.0 6.0
13.8 15.7 17.3
21.9 23.7
26.9 29.0 30.5
32.4 34.9
38.2 41.9
46.8 50.8
54.9
60.1 59.8
54.4 54.1 51.0 51.9 52.1
53.9
49.4 47.2
50.7 47.9
43.8 43.3 45.6
49.1 49.1 51.0
44.3
38.7 41.5 42.8
43.9 45.4
50.0
20.9 24.5
29.1
34.1
38.8
43.4 46.9 47.2
50.6 51.5 53.0 53.6 57.7
61.5
65.9 69.3 70.5 70.5
75.1 73.6 75.9
78.8 78.5
84.4
89.0 89.3
84.8 83.7 82.4 84.9 85.5
81.4 81.8
84.7
101.0
95.3
100.7 97.1 98.1
95.9
5.3 7.2
9.6 10.7
13.5 14.2 12.9 14.0 13.5 12.8
12.3 11.3 9.4
7.2 6.6 6.3 6.7
9.5
16.2
13.2
18.4 19.9
18.5
34.0
37.5
33.0
30.0
35.0 35.3 35.5
31.3
27.5 25.4
33.2
52.0
42.3 42.8
47.5
42.9 41.3
0
20
40
60
80
100
120
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
（in trillion yen）
（FY）
Total Expenditures
Tax revenues
Special Deficit-Financing Bond Issues
Construction Bond Issues
（Note1）FY1975-2012: Settlement, FY2013: Including supplementary budget, FY2014: Budget （Note2）Following various bonds are excluded: Ad-hoc Special Deficit-Financing bonds issued in FY1990 as a source of funds to
support peace and reconstruction activities in the Persian Gulf Region, Tax reduction-related Special Deficit-Financing bonds issued in FY1994-1996 to make up for decline in tax revenues due to a sereis of income tax cuts preceding consumption tax hike from 3% to 5%, Reconstruction bonds issued in FY2011 as a source of funds to implement measures for the Reconstruction from the Great East Japan Earthquake, Pension-related Special Deficit-Financing bonds issued in FY2012,2013 as a source of funds to achieve the targeted national contribution to one-half of basic pension.
Government Financial Liabilities and Household Financial Assets
4
0
30
60
90
120
150
180
210
240
1999 2001 2003 2005 2007 2009 2011 2013
（％）
（CY） (Source) OECD “Economic Outlook 94” (November, 2013）
(Note)Figures represent the general government-based data
Japan
Italy
U.S.
France
Germany Canada
U.K.
General Government Gross Debt
(International Comparison)
1,579
1,218
1,124
616
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Trends in General Government Financial Liabilities
and Household Financial Assets (unit : trillion yen)
Household Gross
Financial Assets
General Government
Gross Financial
Liabilities
General Government
Net Financial Liabilities
Household Net Financial Assets
(Note1) The data are as of the end of FY. (Note2) Household Net Financial Assets : Some liabilities such as home mortgage are excluded from gross financial assets. (Source) The BOJ (Bank of Japan) “Flow of Funds Accounts” (published Mar. 2014. )
Aging Population
5
● Ratio of People Older than 65 years to the Total Population
(Source) Japan 1950-2010: “National Census” (Ministry of Internal Affairs and Communications) 2011-2050: “Japanese Future Demographic Projections” (National Institute of Population and Social Security Research) (January, 2012) Other countries: “World Population Prospects: the 2012 Revision” (United Nations)
● Japanese Life Expectancy
(Source) “Abridged Life Tables 2012” (Ministry of Health, Labor and Welfare) (July, 2013)
1961 1973 2012
Life Expectancy (male)
66.0 70.7 79.9
Life Expectancy (female)
70.8 76.0 86.4
Life Expectancy at age 65
(male)
11.9 13.2 18.7
Life Expectancy at age 65
(female)
14.1 16.1 23.8
Life Expectancy at age 75
(male)
6.7 7.4 11.6
Life Expectancy at age 75
(female)
7.8 9.1 15.3
Balance between beneficiaries/contributors in social security system is getting vulnerable
6
（Source）“Population Estimates” and “National Census” (Ministry of Internal Affairs and Communications), ”Population Projection for Japan （middle fertility and mortality projection)” (National Institute of Population and Security Research)
65 or older
20-64
19 or younger
<2050> <1965> <2012>
- - ; - - ; - - ; > < ＾＾
＾＾ ＾＾
＾＾ ＾＾
＾＾ ＾＾
＾＾ ＾＾
1 : 9.1 1 : 1.2
＾＾
need to increase the “supporters” by social security reform
＾＾
^ ^ 0
^ ^ 0
1 : 3
Support of childcare
etc.
Taking
measures for
the elder to
work longer
Popu
lation (co
mpo
nent ratio
)
65 or older
20-64
3,602(36.7%) 2,252
(17.7%) 1,297(13.4%)
5,608(57.1%)
7,415(58.2%)
4,643(47.8%)
618(6.3%)
3,083(24.2%)
3,768(38.8%)
1965 2012 2050
Social Security Benefits
7
8
The role of the consumption tax Characteristics of consumption tax
Stable revenue source
Neutral for economic activities
Large amount of revenue
Maintenance of the social security system and Fiscal consolidation; To achieve these two goals simultaneously, make use of the consumption tax as a main resource for tax revenues.
In fact, during the introduction and twice rate hikes of consumption tax, we had gone through difficult and winding paths.
9
Frequency of the consumption tax rate hikes - international comparison
Pre-history of the consumption tax From the accession to OECD to the present
In 1964 Accession to OECD
＋25years later In 1989 Introduction of the consumption tax（３％）
＋25years later In 2014 Second hike of the consumption tax rate（８％） History to Introduction
Comparison of tax revenues （in trillion yen）
Need to shift the balance from direct taxes to indirect taxes
1978 Consideration of General Consumption Tax by LDP
Election rout → recalled
１987 Submission of the bill of Sales Tax by LDP
Abolished
Cause of the above failure：unpopularity among salaried employees and small/medium businesses
10
Tax Revenue in General Account
Individual Income Tax
Corporate Income Tax
Commodity tax etc.
FY 1975 13.7 5.5 (39.9％) 4.1 (30.0％) 0.8 (5.5％)
11
Introduction of the consumption tax Introduction of the consumption tax
1988 Submission of the bill of the consumption tax act by LDP ⇒ Approved by the Congress
1989 Introduction of the consumption tax
Contents of the tax reform
Introduction of consumption tax： ３％
Simple requirement for keeping books and/or bills without introducing invoices
Special measures for SMEs：exemption threshold, simplified tax scheme
Individual income tax cut： decreasing tax rate, expanding deductions （ex. basic deduction）
Corporate income tax cut ：staged decreases of tax rate （42％→37.5％）
Comparison of tax revenue （in trillion yen）
Tax Revenue in General Account
Individual Income Tax
Corporate Income Tax
Consumption tax (Commodity tax etc. )
FY 1990 60.1 26.0 (43.2％) 18.4 (30.5％) 4.6 (7.7％)
FY 1975 13.7 5.5 (39.9％) 4.1 (30.0％) 0.8 (5.5％)
Note: Commodity tax was abolished when the consumption tax was introduced.
First consumption tax rate hike (1997) - 1
12
Steps toward the consumption tax rate hike 1994 Consideration of National Welfare Tax by SP
coalition forces ⇒ Recalled
1994 Submission of the bill of the consumption tax rate hike by LDP coalition forces ⇒ Approved by the Congress
1997 Consumption tax rate hike
Contents of the tax reform Consumption tax rate hike （３％→５％）
Reduction of special measures for SMEs： lowering exemption threshold, narrowing simplified tax system
Individual income tax cut：introducing special tax reduction, reducing progressivity of the tax rate, expanding deductions （ex. basic deduction）
Comparison of tax revenue （in trillion yen）
Economic Depression
Nominal GDP
(in trillion yen)
Real growth rate
(％)
FY 1996 515.9 2.7
FY 1997 521.3 0.1
FY 1998 510.9 △1.5
FY 1999 506.6 0.5
Tax Revenue in General Account
Individual Income Tax
Corporate Income Tax
Consumption tax (Commodity tax etc.)
FY 1998 49.4 17.0 (34.4％) 11.4 (23.1％) 10.1 (20.4％)
FY 1990 60.1 26.0 (43.2％) 18.4 (30.5％) 4.6 (7.7％)
FY 1975 13.7 5.5 (39.9％) 4.1 (30.0％) 0.8 (5.5％)
Note: Commodity tax was abolished when the consumption tax was introduced.
Trends in Real GDP and Private Consumption
before and after the Increase of the Consumption Tax Rate in 1997
13
Second consumption tax rate hike(2014)
14
Steps toward the second hike
2009 Enactment of the Program Act（Aso cabinet） ⇒ Change of the government
2012 Enactment of the Act on Comprehensive Reform of Tax System ⇒ Change of the government
• 2014.4 ５％→８％、 2015.10 ８％→10％
2014 Consumption tax rate hike ５％ → ８％
Contents of the tax reform Using the consumption tax revenue as a main resource for the social security
Raising top rate of the individual income tax
Taking economic measures （about ５ trillion yen）
• Measures for alleviating the consumption tax burden on the purchase of houses
• Measures for activating of private investment （ex. R&D tax credit）
Measures for smooth pass-through of the increased consumption tax on sales price
• Background: SMEs have shown concerns that they would suffer from being beat down of prices by large enterprisers or rise in prices of their commodities and services would not be accepted by consumers.
Act for the measures to ensure the smooth and proper shifting of the tax increase to prices (ex. establishment of G-men for pass-through and over 150 thousands of investigations)
Measures for low-income households ⇒ This theme will be presented by Director Ito（Session ６）.
0.99
0.94
0.71 0.69 0.69 0.68 0.67 0.63
0.60 0.60 0.59 0.58 0.56 0.55 0.55 0.55 0.55
0.52 0.50 0.49 0.48 0.48 0.48 0.48 0.47 0.46 0.46 0.46
0.43 0.41 0.41 0.37
0.32
0.0
0.2
0.4
0.6
0.8
1.0
1.2
（Source）ＯＥＣＤ"Consumption Tax Trends 2012", "Revenue Statistics 1965-2012" and "National Accounts "
Vat Revenue
（Consumption Expenditure－Vat Revenue）×Standard VRR (Vat Revenue Ratio) =
International Comparison of VRR among OECD Countries
15
Future steps
16
During the introduction and twice rate hikes of the consumption tax, we had gone through difficult and winding paths; however, Single rate structure has been maintained. Special measures for SMEs have been diminished.
⇒ The efficiency of Japanese consumption tax is fairly well. However, rate is still low.
Future By the end of this year: final judgement of the consumption tax rate hike
from 8% to 10% in October 2015. By FY 2020: Accomplishment fiscal consolidation target(Achieving a
primary surplus) Based on the experience about the introduction and hikes of the
consumption tax, the consumption tax policy is discussed discretely among politicians. The People are sensitive to economic conditions and issues of price rise.
However, considering the fiscal situation and the rapid aging of the population, raising the consumption tax rate is necessary.
Questions
17
Have you ever gone through similar difficulty in raising the consumption tax?
In a political context, are consumption tax rate hikes impressed favorably or unfavorably?
In case oppositions exceed supports about raising the consumption tax rate, what sort of measures have you taken? Have the measures succeeded or failed?
