Japan’s Leaders Frustrated in Bid to Tax Sales

TOKYO — Japan’s ruling Liberal Democratic Party feels a desperate need to introduce a sales tax if it is to avoid national insolvency and political disaster in the future.

But its efforts over the past 10 years to pass such a tax have proven fruitless in the face of bitter parliamentary and voter opposition.

On Tuesday, Prime Minister Noboru Takeshita dropped the latest proposal after vociferous opposition protests that stalled all other parliamentary business for nearly a week.

He was the latest of a succession of prime ministers who have fallen victim to this bane of the Liberal Democratic Party.

The party first tried to introduce a consumer tax in 1979, and Takeshita’s predecessors Yasuhiro Nakasone and Masayoshi Ohira suffered serious setbacks when they tried and failed to get the tax bill enacted.

At each attempt, the party suffered electoral defeats from voter resentment against what was seen as a government effort to increase the taxpayer’s burden.

The government wants a more stable source of revenue in the face of the twin problems of an accumulating budget deficit and an aging population, which will reduce revenue from income taxes in the decades to come.

Need Drastic Reform

Failure to make provision for the aged could lose the Liberal Democratic Party many traditional votes.

Senior party officials have been insisting for weeks that planned income tax cuts must be balanced by the introduction of some form of indirect taxation.

“A drastic tax reform is one of the most important tasks facing the nation,” Takeshita said in January. “I intend to use all my energy to prepare and realize plans on a radical tax system reform that will be acceptable to the people.”

But the Liberal Democratic Party backed down, dropping its demand that income tax cuts be linked to an agreement on indirect tax as a substitute, although political analysts said the proposal could be revived as early as mid-year.

The Liberal Democratic Party has a majority in Parliament and could, if it wanted, ignore the opposition and force the bill through.

But the ferocity of the opposition to the proposal, Takeshita’s consensus style of politics and a humiliating defeat in a parliamentary by-election last month convinced the Liberal Democratic Party that it should temporarily drop the idea once again.

The arguments for introducing a value-added tax in Japan are much the same as those advanced in Europe and elsewhere over the past 20 years, to share the tax burden more equitably and reduce the chance of tax evasion.

Many Evade Taxes

Many taxpayers resent such a tax, even though the proposal should in theory reduce the tax load on ordinary wage earners.

With the government heavily dependent on direct taxation, Japan’s 35 million salaried workers have long been forced to bear the brunt of the load.

Direct taxes on individual and company earnings provide nearly three-quarters of the nation’s tax revenue but farmers, doctors and retail stores are among the many groups notorious for tax evasion.

The feeling of tax inequality is highlighted by the uneven ratio of income taxes paid. While salaried workers pay 100% of taxes due, shopkeepers can get away with 60% and farmers can avoid all but 10%, according to a study by professor Toru Hashimoto of the private Kansai Gakuin University.