Japan to raise sales tax, cushion blow with stimulus -final draft

TOKYO - Japan's Prime Minister Shinzo Abe will announce that he is raising the nation's sales tax in April while cushioning the economy with a US$50 billion (S$62.80 billion) stimulus package, according to a final draft of the government measures seen by Reuters on Monday.

The tax increase to 8 per cent from 5 per cent, to be announced on Tuesday, is the government's first attempt in more than 15 years to rein in Japan's runaway public debt.

The stimulus package - including public works spending for the 2020 Tokyo Olympics, tax breaks for corporate capital spending and an early end to a corporate tax add-on that funds reconstruction from the 2011 earthquake and tsunami - is worth 5 trillion yen (US$50.89 billion), according to the draft.

A source involved in the process said the size of the package could increase somewhat, depending on final handling of the reconstruction tax.

Most of the contents had been widely expected, but one surprise was that the package does not mention possible future cuts in the corporate tax rate.

Economy Minister Akira Amari and many business leaders had pushed for a clear vow to consider in the near future reductions to the corporate tax rate, but the Finance Ministry successfully fought such a commitment out of concern for Japan's runaway public debt.