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Japan’s Consumption Tax Set to Increase April 1

On Tuesday, April 1, Japan’s national consumption tax rate will increase from 5 percent to 8 percent. While this is the first rate increase since 1997, it comes at a time when Japan’s economy is growing at a sluggish pace and the yen’s purchasing power is in a weakened state – raising concerns about the impact of the rate increase on discretionary income and consumer confidence. These concerns were heightened by a surprising decline in consumer spending in February.

“Japan’s retail sector may be able to absorb the consumption tax increase more easily than the foodservice industry, because of the diversity of products involved,” said USMEF President and CEO Philip Seng. “But for foodservice providers this is definitely a concern right now, and a situation they will be watching carefully.”

Another hike in the consumption tax rate – from 8 percent to 10 percent – is tentatively set to take effect in October 2015. But for this second phase of the rate increase, lawmakers are considering exemptions or smaller rate increases for certain goods. Food and beverage products – especially those purchased at retail – are likely candidates for more favorable treatment. A discussion of the second phase of the consumption tax increase was recently featured in The Japan Times.