Business

Japan proceeds with twice-delayed sales tax hike

TOKYO: Japan rolled out a twice-delayed increase in the sales tax to 10 per cent from 8 per cent yesterday, a move that is seen as critical for fixing the country's tattered finances but that could tip the economy into recession by dampening consumer sentiment.

The government has already applied measures to mitigate the pain on consumption, mindful of avoiding the effects of the last increase in 2014, which led to a severe economic downturn.

Television broadcasters showed images of crowds buying items such as wine, cosmetics and jewellery before the increase hit.

"I was a bit worried whether I can buy this at 8 per cent tax rate, but now I'm relieved that I made it," a 45-year-old woman told public broadcaster NHK after buying a 70,000 yen (S$896) bed at a department store in Tokyo.

When the government raised the tax to 8 per cent from 5 per cent in April 2014, a last-minute buying spree and a subsequent pullback in demand caused a big downward swing in consumer spending.

The bitter memory led Prime Minister Shinzo Abe to twice delay the increase to 10 per cent until yesterday. But the higher tax rate will still hit an economy suffering from slowing global demand and bitter trade tensions.

Mr Abe said the tax hike would help pay for social security services in an ageing society, such as making preschool education free, lowering nursing care insurance premiums, and providing payouts to the elderly with low pension benefits. - REUTERS

BUSINESS & FINANCE