Planned Food Tax Cut Faces Implementation Challenges

Tokyo, April 29 (Jiji Press)–Japan’s nonpartisan National Council on Social Security is discussing challenges over a planned consumption tax cut for food items, including when to introduce the step. Although Prime Minister Sanae Takaichi aims to implement a two-year food tax rate reduction to zero pct within fiscal 2026, it would take a year to make cash register systems compatible with a zero pct tax rate. Some are calling for implementing a tax rate of 1 pct instead of fully shelving the tax, so that the system updating process becomes easier. Others are proposing scrapping the tax cut plan altogether, which is regarded as a stopgap measure before introducing a refundable tax credit system. In February, Takaichi’s ruling Liberal Democratic Party won a landslide victory in the general election for the House of Representatives, the all-important lower chamber of the Diet, the country’s parliament, by pledging to accelerate discussions on a zero consumption tax rate on food items for two years. Her administration then set up the national council and began hearings with relevant groups, during which challenges associated with the planned tax cut came to the surface. Restaurant operators are concerned that people may refrain from eating out if the tax rate on eat-in food remains at 10 pct while the rate on takeout products is lowered. Small-scale fishery operators and farmers, who collect consumption tax from their customers but are exempted from paying it, are worried about a fall in their income resulting from the planned tax cut. The biggest challenge to the tax cut plan is time-consuming work to update cash register systems at supermarkets and other retailers. A tax rate of 1 pct has emerged as a measure to evade this problem. Whereas a zero pct tax rate would require building new systems from scratch, a tax rate cut to 1 pct would only need three to six months for cash register system revisions, according to an industry source. A 1 pct tax rate “may not be a 100 pct solution, but it is a possible option if it is the way to deliver results to the people as soon as possible,” said Satoshi Umemura, head of the tax system research council of the Japan Innovation Party, the LDP’s coalition partner. However, this could be criticized as a violation of the LDP’s campaign pledge in the general election. The party’s tax panel chief, Itsunori Onodera, said, “We want to discuss various options.” Meanwhile, economic organizations are calling for forgoing the planned two-year tax cut and implementing a refundable tax credit program. Still, it could take two to three years to implement the program even in a simplified form if the central government handles related operations. Some propose utilizing local governments’ existing infrastructure for implementation, but Shunji Kono, governor of the southwestern prefecture of Miyazaki, warned against passing the burden on to local governments. Local governments are cautious about such a proposal because they were forced to handle huge administrative work for cash handouts during the COVID-19 pandemic. The national council will speed up discussions to compile an interim report by this summer. Takaichi aims to submit a tax system revision bill during a possible extraordinary Diet session this autumn. Nevertheless, there remain a mountain of challenges, also including how to make up for a tax revenue decrease of 5 trillion yen a year that would result from the planned tax cut. END [Copyright The Jiji Press, Ltd.]