For the first time, Japan has increased its consumption tax in the past five years. This has resulted into bringing the long-delayed policy into effect however experts suggest it may affect the economy.
On Tuesday, Japan increased its sales tax from 8% to 10%. Based on records, the new rates will be applicable on goods and services, books, electronics, although most of the food will be exempted.
The government has launched measures which include rebates on certain purchases carried out via electronic payments. Extra revenues to fund the social welfare programmes which included pre-school education will be used.
Reports allege the consumers will receive a 5% rebate on purchase carried out through electronic payments with small retailers which will outstrip the 2% tax rise.
The recent move is taken in order to mitigate the effect of tax increase as well as to boost the use of electronic payments in cash-dependent economy of Japan.
According to Martin Schulz, senior research fellow of Fujitsu Research Institute, the rebates were created to “make the economy more productive”.
In the past, the sales tax rises in Japan have affected the spending sharply. However, economists believe the situation will be different this time, and the hit will be modest.
“The economy is comparatively strong. Next year it may be strong because of [Japan hosting] the Olympics… but it very much depends on the external environment and the trade war,” said Schulz.