Japan’s ruling Liberal Democratic Party on Wednesday proposed reducing the consumption tax rate on food and beverages from the current 8 percent to 1 percent for two years starting April 2027, rather than cutting it to zero as pledged in the last general election campaign.
The proposal was made by LDP tax policy chief Itsunori Onodera at a meeting of the cross-party national council on taxation and social security as a draft for an interim report on the issue to be compiled later this month, after monthslong discussions.
To make the tax rate effectively zero, the proposal also said cash handouts totaling 600 billion yen ($3.7 billion) per year, equivalent to the expected revenue from 1 percent taxation on food, will begin around fall next year based on income.
It remains unclear whether the eight participating parties in the council, including the Democratic Party for the People and Team Mirai, which are opposed to a consumption tax cut, can reach an agreement. Some opposition parties have not been invited to join the council.
In its campaign pledge for the House of Representatives election in February, the LDP, led by Prime Minister Sanae Takaichi, promised to cut the consumption tax on food products to zero for two years. Its junior coalition partner, the Japan Innovation Party, and many opposition parties made similar promises amid prolonged inflation.
The 1 percent consumption tax plan has been proposed because changing the tax rate to zero would require more time to adjust retailers’ cash register systems.
The plan to provide cash handouts for two years is expected to be a precursor to a future scheme of refundable tax credit designed to target tax-exempt, low-income working households, and the LDP aims to refine the system from fiscal 2029 to select recipients more precisely, Onodera told reporters.
“As the council’s chair, I put forward the proposal to bring together different views of political parties,” Onodera said, adding that multiple meetings will be held next week to finalize the interim report.
Takaichi has indicated that she wants to move ahead with the tax reduction “as soon as possible” once the interim report is presented by the national council.
The Takaichi government hopes that related legislation lowering the consumption tax to 1 percent will be enacted by this fall to allow enough time for retailers to update their cash register systems, a process expected to take about six months.
The government has also been considering subsidies for farmers and restaurant operators, who could be affected by the envisaged tax reduction.
However, with Japanese government bond yields surging to their highest levels in decades and the Japanese yen remaining weak, the tax cut plan could further raise concerns about the nation’s fiscal health, which is the worst among the Group of Seven economies.
© KYODO
