To discuss Japan's prime minister Shinzo Abe with reference
only to April's consumption tax increase would be a disservice
to his wider impact on tax. Abe re-entered politics under the
scope of economic reforms now known as 'Abenomics', faced with
a heavy burden of government debt to GDP and a rapidly aging
population. Though his policies aimed to stimulate Japan's
listless economy, many Japanese have yet to see any growth,
leading some to
question their leader's brand of 'Abenomics'.
|Shinzo Abe was
also in the Global Tax 50
Fiscally conservative Abe inherited a consumption tax
increase from his previous administration, though he has taken
much of the flak for Japan's recessional dip in the second and
third quarters of 2014 after the introduction of the increase.
consumption tax rose from 5% to 8%, but the increase was
enough to stymie Japanese consumer spending.
Though the short-to-medium economic outlook is bleak, the
benefits of an increase
may not be felt for another few years as Abe amends
consumption tax in other ways.
In 2015, Abe is changing the applicability of consumption
tax on e-commerce. The tax is levied at the jurisdiction of
production. This allows foreign firms to sell to Japan
tax-free, while local firms absorb the tax cost. Now the tax
will be levied at the jurisdiction of consumption, requiring
foreign firms to pay tax in Japan. The move will possibly
stimulate jobs as e-commerce businesses set up branches in
Japan to cater to customers there.
Abe is also considering reducing consumption tax on vital
consumer goods such as food. Though no formal announcement will
be made until after his re-election, insiders say the rate will
likely be dropped to ease the burden on low income
Abe's other promised reforms have been nearly forgotten.
Japan's corporate tax rate – one of the highest in
the world at around 35% –
will be decreased in fiscal year 2015. Previous
administrations hesitated to drop the rate because only
one-third of Japanese corporations pay income tax. Though
numbers have not been formally announced, economists suggest
dropping the rate several percentage points to below 30%.
Abe has also introduced new corporate tax incentives and
better transfer pricing guidelines on permanent establishment
and profit attribution.
"I believe there will come a day when the economy will start
a virtuous circle that will be felt in every corner of the
nation. There are always those who criticise, but those people
never come up with an alternative," said Abe, defending his tax
position to the Financial Times in November.
Abe called a snap election for December to secure a mandate
for his economic programme after just two years in power, a
gamble which paid off when his Liberal Democratic Party secured
more than half of the votes despite a disappointing voter
turnout. With a coalition partner, Abe now has the two-thirds
majority necessary to pass laws without the approval of the
upper house, thus ensuring he is able to build on this year's
influence throughout 2015.
Regardless of whether his policies have made an immediate
impact, the Japanese leader has undeniably been one of the most
spoken-of figures in the tax world this year and is poised to
stick around for another four years.