August 27, 2014 / 8:59 AM / in 4 years

Japan Abe aide Hamada: Could do next sales tax hike in stages

TOKYO (Reuters) - Japan could soften the impact of a planned sales tax increase by raising it in stages rather than IN a single hike, an outside adviser to Prime Minister Shinzo Abe said on Wednesday.

Koichi Hamada, professor emeritus of economics at Yale University and an economic adviser to Japan's Prime Minister Shinzo Abe, speaks during an interview with Reuters in Tokyo March 15, 2013. REUTERS/Toru Hanai

Koichi Hamada, professor emeritus of economics at Yale University, also told Reuters that Abe should focus on structural reforms and slash corporate taxes deeper than currently planned to boost the economy and attract investment.

Abe raised the sales tax in April to 8 percent from 5 percent to curb Japan’s runaway government debt. The increase hit consumption, sending the economy into its worst fall in the second quarter since the 2011 earthquake and tsunami.

The premier is to decide around the end of the year whether to proceed with another planned hike, to 10 percent, in October 2015.

“As we have seen, the shock from the consumption tax hike could be large,” Hamada said in an interview. “So, ideally, we could raise it in a staged manner, such as 1 percentage point in October 2015 and another point after that.”

Abe’s government plans to cut the corporate tax rate - among the highest in the world at more than 35 percent - to less than 30 percent over several years. Details of the exact scale and timing of the cuts have not been decided.

“A drastic corporate tax cut would attract investment to Japan from abroad as well as domestically,” Hamada said. “This would help to revitalize the Japanese economy, which will help expand the tax base.”

Reporting by Kaori Kaneko, Sumito Ito and Leika Kihara; Editing by William Mallard and Edmund Klamann

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