TOKYO – The Japanese government started implementing on Tuesday an increase in value-added tax from 8 to 10 percent in order to fund the country’s rising social security costs.
The VAT was last increased in 2014, when the rate stood at five percent.
The move is a key part of the strategy of Prime Minister Shinzo Abe’s government to give a new impetus to the world’s third-largest economy and tackle the challenge of mounting public debt.
The government had been twice forced to postpone the increase in VAT since the originally-planned date (October 2015) due to negative developments in the national economy and a fear of it affecting domestic consumption.
To mitigate the impact on household spending, the government has decided to exempt fresh food and other basic products from the tax hike while promoting a system of bonuses for consumers who pay for their purchases by credit cards or other electronic payment systems.
The VAT increase is expected to generate additional annual revenues of 5.7 trillion yen ($52.7 billion), which will be used to finance public health and pension systems, as well as the construction of more daycare centers.
The prime minister said the aim was to guarantee social security for a wide range of people, from children to the elderly, as well as increase benefits for low-income pensioners.