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Japan retail plummets inflation rockets on Consumption Tax rise

  • May 28, 2014 | Richard Asquith

Japan retail plummets inflation rockets on Consumption Tax rise

Japanese retail sales dropped 13.7% in April following the imposition of a Consumption Tax rise from 5% to 8% on 1 April 2014. And inflation hit a 23 year high with a 3% rise above the core rate measure based on a 2010 base.

The fall in the consumption figures were expected falling a big rise in spending in March as shoppers sought to buy ahead of the indirect tax rise.  However, the extent of the retraction will alarm economists as it is the fastest decline in over three years.  The drop was also bigger than at the last Consumption Tax rise in 1989. The tax rise has also pushed inflation to 3.1%.

Consumption Tax hike as part of economic recovery plan

There will be hope that output will bounce back in May as companies have held back on inventory restocking as they waited to see the outcome of April's Japan VAT rise.

The rise was long debated and planned to help fund a fast aging population and pay for rising social security bills.  It is seen as one of the central planks of Prime Minister Shinzo Abe's shock economic policies to help jolt the long-stagnant Japanese economy back into like.  Up until these figures, the signs had been largely positive as the world's 3rd largest economy had been one of the few bright spots in the global financial scene.

A second Japanese Consumption Tax rise to 10% is planned for October 2015.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which won International Tax Review's 2020 Tax Technology Firm of the Year. Richard trained as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.