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For the first time in three years, the Tax Commission has proposed raising the consumption tax (now at 5 percent) in its tax-reform recommendations for fiscal 2008. It regards the consumption tax as a stable core revenue source to cover growing social security costs. But the commission, an advisory body for the prime minister, refrained from saying when and by how much the consumption tax should be raised. Instead, it has called on the government to make an appropriate decision.

Prime Minister Yasuo Fukuda has already ruled out the possibility of raising the consumption tax during fiscal 2008 (through March 31, 2009). He said that, despite a revenue shortage, to raise the consumption tax is simplistic. Due to the fluid political situation, the possibility remains that the Lower House will be dissolved in the near future for general elections. Mr. Fukuda apparently wants to avoid an unpopular tax increase.

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