IMF urges Japan to raise sales tax

08:58, July 16, 2010      

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The IMF asked Japan on Wednesday to push ahead with a consumption-tax increase that was seen as key to Japanese Prime Minister Naoto Kan's party defeat in crucial elections.

The Washington-based fund suggested a "gradual" increase of the tax as part of "early and credible" fiscal reforms to curb the nation's huge public debt that is nearing 200 percent of gross domestic product.

When Kan was appointed more than a month ago, polls showed majorities believed a tax hike was necessary to pay for welfare and social security costs in the rapidly aging country.

But a survey by the Asahi Shimbun published this week said that while 63 percent of participants wanted politicians to continue to discuss a tax hike, only 35 percent supported an immediate increase.

The debt crisis in Europe had raised the "uncertainty and downside risks" around Japan's economic outlook and sharpened the focus on its massive debt problem, the IMF said in a report after annual consultations with Tokyo.

Bringing down Japan's public debt "will require a large and protracted adjustment that will be made more credible by an early increase in the consumption tax," the Washington-based IMF said.

The fund said a gradual increase in the consumption tax to 15 percent, beginning in 2011 and distributed over several years, could generate 4 to 5 percent of GDP in revenue.

Japan's central bank Thursday raised its growth forecast to 2.6 percent for this fiscal year as recovery in this country inches ahead thanks to demand in emerging nations, especially in China and Southeast Asia.

Source: Global Times


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