Japan's Debt Crisis: VAT to the Rescue

Japan's Debt Crisis: VAT to the Rescue

Japan's economy could soon be ravished by a savage beast. This time the monster takes the form of public debt. No less a figure that Japanese Prime Minister Naoto Kan recently warned that the economy could "collapse" due to the combined effects of Japan's massive debt burden and an aging population.

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So what does a responsible government do? Fortunately there's an answer: VAT to the rescue.

Japan has had a VAT for a couple of decades. The standard rate is very low at a mere 5%.

Let's put Japan's 5% VAT rate into context. VAT rates in the EU range from 15% (minimum) to 25% (maximum). In other words, Japan's VAT rate is only one-third of the minimum rate permissible in the EU. Connect the dots here and you'll see there's an obvious deal to be had, and Japanese lawmakers are starting to realize it. They need to increase the VAT, say from 5% to 10%, and then radically reduce the corporate rate down to something more globally competitive like 20% or 25%. Double the VAT and halve the corporate rate.

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Friends, this deal is a no-brainer. Japan's new government and their business sector colleagues are serious about getting it done. We shall witness a business lobby with the foresight to welcome increased consumption taxation. If only K Street would get a clue.

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View the VAT Bastard's opinion in its entirety on TAX.com.