Japan unveils sales tax hike in October 2019 from 8% to 10 %

Tokyo

JAPAN on Monday announced a much anticipated sales tax hike in 2019 to address the nation's huge public debt, despite warnings that it could hobble growth in the world's third-biggest economy.

The point-of-sale tax will rise from eight per cent to 10 per cent from October next year as ageing and heavily indebted Japan battles to finance snowballing social security bills - especially medical fees.

The tax rise was originally planned for October 2015 but was pushed back twice due to fears that it could derail the fragile economy. The last such move - in April 2014 - was blamed for tipping Japan into a brief recession.

This time, Prime Minister Shinzo Abe believes he can avoid a sharp decline in consumer spending by introducing measures to cushion the blow.

Mr Abe said: "We have to face the problems caused by our ageing society and build a welfare system that is fiscally sound." The government needs extra tax revenue to pay for ballooning healthcare costs for its rapidly ageing population.

The government "will do its best to avoid a negative impact on the economy by taking every possible measure," Chief Cabinet Secretary Yoshihide Suga told reporters.

However, Mr Suga added that the planned hike could still be scrapped if there were a potentially historic recession like a global slump triggered by the 2008 collapse of Lehman Brothers.

The measures will include plans to leave the sales tax on food unchanged at eight per cent, Mr Suga said.

The government also plans subsidies to offset the impact of the sales tax hike on some durable goods such as houses and environmentally friendly cars. AFP