The administration intends to outline a doubling of the consumption tax to 10 percent in stages by fiscal 2015 in its envisaged social security and tax reforms, official sources said Tuesday.
The plan will be presented at an administration committee meeting Thursday, the sources said. The tax increase would be used to help cover swelling social security costs amid the aging population.
The reforms, a key policy of Prime Minister Naoto Kan, would also entail a reduction in pension payments to the elderly with higher incomes.
The government estimates rising social security costs will require an additional ¥2.7 trillion in fiscal 2015.
The fiscal burden could be larger if the government is to continue covering half of basic pension costs.
Some ¥2.5 trillion ends up in government coffers with every 1 percentage point rise in the consumption tax, according to the Finance Ministry.
On Monday, a group of academic experts submitted a report to the welfare reform panel, saying any increase in the tax should be conducted in stages to prevent economic volatility, stressing that when to start raising the tax would depend largely on how fast the economy is expanding.
The research report noted the recent hikes of value-added tax by 3 percentage points in Germany and 2.5 percentage points in Britain, fueling speculation that Japan is looking at a 2- to 3-point increase twice in the future.
The administration could possibly start taking necessary legislative steps as early as this fiscal year, the sources said, adding that the first increase may come in the next fiscal year.