Japan must follow EU’s tax strategy to help regain competiveness

25 September 2013

As Japan was warned yesterday that it will have to raise its Consumption Tax (VAT) from 5% to 20% by 2020 to avert a debt disaster, it will look to the EU to see how it has attempted to improve its global competitiveness by shifting the tax burden to shoppers.

Whilst Japan has kept its Consumption Tax and Corporate Tax frozen in the past years, the 28 EU member states have quietly cut 10% of business taxes, funded by a 5% rise in VAT.

Japan corporates held back by lack of fiscal competitiveness

EU member states started six years ago an aggressive campaign to retain and attract global business through a fiscal strategy of pivoting the tax burden away from companies onto shoppers. This has led to average EU corporate tax rates falling from 34% to 24% since 2000. At the same time, VAT on consumption has risen from 17% to 22%.

Over the same period, Japan has left its taxes untouched leaving domestic businesses hampered on the global stage, and reducing Japan’s attractiveness to foreign investment. Japan is planning to raise its Consumption Tax rate from 5% to 10% by 2015 (subject to growth targets), although attempts to cut the Corporate Tax rate are faltering.

Richard Asquith, Head of Tax at TMF Group, commented: "Japan needs to give its business sector a helping hand. Aside from Europe, China and India are fast revamping their taxes on consumers to help reduce the corporate burden. Japan has been left behind and faltering with the highest business tax rate in the OECD."

 
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