Interim Draft on 2-Year Food Tax Cut Presented

(The 10th paragraph should have read, “…will be raised to…,” instead of as sent. A substitute story follows.) Interim Draft on 2-Year Food Tax Cut Presented Tokyo, June 25 (Jiji Press)–The head of a Japanese suprapartisan council on social security on Wednesday presented an interim draft on a proposed cut in the consumption tax rate for food as a measure to help cushion the impact of inflation as well sa related measures. The draft, unveiled by Itsunori Onodera, chief of the ruling Liberal Democratic Party’s Research Commission on the Tax System at a working-level meeting of the National Council on Social Security, calls for reducing the tax rate to 1 pct for food for two years from April 2027. In addition, a finely tailored cash benefit program that is linked to income levels and is equivalent to the amount of revenue from a 1 pct consumption tax rate for food will be introduced in fiscal 2027 in order to effectively reduce the tax rate to zero for food items, according to the draft. Furthermore, it calls for a study on measures to support eating and drinking establishments that are expected to suffer adverse impacts from the tax cut. The council aims to formalize the series of measures within this month after forging a consensus between the ruling and opposition sides. A final decision will be made by Prime Minister Sanae Takaichi. At the next meeting, members of the council are slated to discuss how to secure financial resources for the tax reduction and the benefit program. “Gaps between parties remain quite large,” Onodera told reporters after the Wednesday meeting, adding, “It would be difficult to obtain consent in a certain direction at the next meeting.” The benefit program, for which about 600 billion yen in financial resources, equivalent to revenue from a 1 pct consumption tax rate for food, is expected to be secured annually, will cover low- and middle-income earners, with additional benefits planned to be offered depending on the number of children aged up to 15. The full-scale introduction of benefits is planned for fiscal 2029, targeting individuals who have a certain amount of earned income and pay taxes and social insurance premiums. The full-fledged measure will be aimed at promoting employment and increasing take-home pay through reductions in social security burdens. The maximum age of children subject to the additional benefits will be raised to 18 while certain exceptions are planned for those with high-income spouses. Takaichi, also leader of the LDP, vowed to reduce the consumption tax rate to zero for food in her campaigning for the Feb. 8 general election for the House of Representatives, the all-important lower chamber of parliament. But her administration is opting to cut the rate to 1 pct, instead of zero pct, putting priority on early implementation. Preparations, such as updating cash registers, are expected to take about six months for a reduction to 1 pct, shorter than the period necessary for a cut to zero pct. The introduction of a refundable tax credit program, which combines income tax deductions and cash benefits, will be considered in the future. For the time being, however, only cash benefits will be implemented to prevent an increase in related administrative burdens. Opposition parties expressed caution over the plan to virtually cut the consumption tax rate to zero for food. Motohisa Furukawa, acting head of the Democratic Party for the People, which is reluctant about tax cuts, said that the party cannot accept the plan. Aoi Furukawa, policy chief of Team Mirai, said, “A consumption tax cut will have a large negative impact on the economy, so it should not be implemented.” Kazuyoshi Akaba, deputy head of the Centrist Reform Alliance, said, “We don’t oppose a (consumption) tax reduction, but we will see the tax rate rise back sharply after two years,” calling for making the tax cut a permanent measure. END [Copyright The Jiji Press, Ltd.]