Japan increases sales tax despite growth jitters

Japan hikes its consumption tax for the 1st time in five years, bringing the long-termed policy into impact despite concerns it may strike the economy. On Tuesday, Japan raised its sales tax rate from 8 percent to 10 percent. The new tax rate applies to nearly all goods as well as services, through most food will be exempt. Previous sales tax increases in the world’s third greatest economy have hit spending.

However, this time the Japanese government has introduced new measures, including rebates for particular purchases made through electronic payments. Reportedly, it plans to use the additional revenues to fund social welfare programmes like pre-school education and to pay down its massive public debt load. Japanese economists at Capital Economics, Marcel Thieliant said that “The government has already guaranteed about half the revenues to fund free childcare.

The recent sales tax hike applicable to most of the goods and services, from electronics to books and cars. Most food items will remain excluded. Consumers will be eligible for a 5 percent rebate on purchases that developed using electronic payments at various smaller retailers, surpassing the two percent tax rise. The move is designed to reduce the impact of the tax hike as well as drive up the use of electronic payments in cash reliant Japan

A senior research fellow at the Fujitsu research institute, Martin Schulz said that rebates are formed to create the Japanese economy more productive. The economy of Japan has operated very strongly in the upcoming months but the tax rise along with uncertainty in the worldwide economy weigh on its outlook.

The massive shrank in China and the trade dispute with the United States have knocked business confidence in Japan because it also struggles with softer worldwide demand for its exports such as electronic equipment and vehicle parts. The effect will almost certainly as it indicates the tax rise with lower pre-emptive purchases of big products like televisions and cars than previous hikes.