VAT is becoming ever more popular among politicians aroung the World. Hardly supprising. Most people think it's the least damaging tax. I suppose the logic must be that less domestic consumption doesn't ulitmately hurt production (that much).
From todays Telegraph "How Japan's massive VAT increase has crippled the economy
Japan's economy contracted sharply in the latest quarter after a sharp rise in sales tax from 5pc to 8pc in April led households and companies to cut spending"
This has lead to quarterly contraction of 1.7% GDP. While it's probably a little early to draw any firm conclusions regarding the effect of the VAT rise, things aren't looking too good so far.
As this report in the Economist makes clear, if there isn't a rebound in the third quarter, the next hike to 10% will be put on ice. I guess we'll have to wait and see.