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Japan postpones consumption tax increase

Japan’s Prime Minister and Cabinet debate the timing of the 10% rate increase. Businesses now have more time to explore responses to the upcoming changes.

At a press conference on 1 June 2016, Japan’s Prime Minister, Shinzō Abe, announced that the consumption tax rate increase to 10% should be postponed for a second time. The Cabinet has proposed delaying the implementation of the rate increase from 1 April 2017 to 1 October 2019, as well as postponing the effective dates for introducing reduced rates for selected goods and new invoicing requirements.

“While the new consumption tax rate of 10% will still be low relative to the rates of VAT and goods and service tax in many countries, it will nevertheless move Japan’s position closer to that of other jurisdictions.“

The National Diet (the Diet) is expected to consider the proposed postponement during an extraordinary session set to convene on 26 September 2016.


The Act for Partial Amendment of the Consumption Tax Act and for the Drastic Reform of the Taxation System for Ensuring Stable Financial Resources for Social Security (the Act), promulgated on 22 August 2012, prescribed an increase in the consumption tax in two phases: first, an increase to 8% as of 1 April 2014, and then an increase to 10% as of 1 October 2015.

However, the Act also included an “economic resiliency” clause that, if applied, would suspend the implementation of the tax rate increase. The clause stated that any increase in the consumption tax rate shall be made only after comprehensive consideration of the current economic climate based on various indicators, including the nominal and real economic growth rate, and commodity price trends.

The first increase to 8% was duly implemented on 1 April 2014 in accordance with the Act.

However, in November 2014, Prime Minister Abe announced that the second stage increase to 10% should be postponed to 1 April 2017 based on an overall consideration of economic conditions. He said there should be no further delays. Pursuant to this announcement, the Act was amended to delay the rate increase as well as to repeal the economic resiliency clause.

However, Prime Minister Abe announced on 1 June 2016 that he had decided to postpone the consumption tax rate hike again to avoid disruption to domestic demand as policy measures are being taken against the backdrop of a global economy that presents significant risks. The Prime Minister said that the increase to 10% should be postponed to 1 October 2019, two and a half years later than the current deadline of 1 April 2017. This will require the Act to be amended.

The Cabinet approved the proposed postponement on 2 June 2016. In addition, the Cabinet on 24 August 2016 adopted a tax amendment proposal that would delay the effective dates of related consumption tax measures. Under the proposal, the introduction of reduced rates for selected goods would be postponed from 1 April 2017 to 1 October 2019, while the introduction of a new invoicing system would be postponed from 1 April 2021 to 1 October 2023.

In addition, the applicable periods for small- and medium-sized enterprises (SMEs) to use simplified calculation methods for calculating output and input taxes on reduced rate transactions would be postponed by two and a half years. The simplified calculation methods are transitional measures designed to help SMEs cope with the administrative burdens of separating input or output transactions by tax rates.

The Cabinet is expected to submit the proposed amendments to the Diet in September 2016.

Impact of the postponement

Businesses had been rushing to update their transactions and systems for accounting and tax purposes ahead of the 1 April 2017 implementation of the 10% rate and introduction of reduced rates. The postponement, if enacted by the Diet, will therefore give businesses additional time to prepare for the changes.

While the new consumption tax rate of 10% will still be low relative to the rates of VAT and goods and service tax in many countries, it will nevertheless move Japan’s position closer to that of other jurisdictions.

Businesses can use the extended period before implementation to review the issues that arose when the rate was raised from 5% to 8%, negotiate improvements in contract terms with regard to consumption tax recognition standards, and consider and negotiate the content and timing of contracts eligible for the lower tax rates applied under transitional measures.

As such, businesses will have the opportunity to more thoroughly explore the different responses they can make to the upcoming changes.

This article is included in issue 18 of EY´s Global tax policy and controversy briefing.


Yoichi Ohira

Indirect Tax Leader, Ernst & Young Tax Co., Tokyo

+81 3 3506 2678



Kazuhiro Ebina

Partner, Ernst & Young Tax Co., Tokyo

+81 3 3506 2463



Nami Okuyama

Senior Manager, Ernst & Young Tax Co., Tokyo

+81 3 3506 1273



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