Japan Govt OKs Consumption Tax Cut Plan

Tokyo, Aug. 5 (Jiji Press)–The Japanese government Wednesday approved a plan to lower the consumption tax rate on food from 8 pct to 1 pct for two years from next April as a measure to cushion the impact of inflation. After the ruling coalition of the Liberal Democratic Party and the Japan Innovation Party completed their internal procedures on the plan earlier in the day, it was adopted at an extraordinary cabinet meeting. The government plans to introduce a cash benefit program for low- and middle-income earners in order to offset their consumption tax burden for food, thereby realizing an effectively zero pct tax rate for food. The government is slated to adopt a tax system reform package in September and submit legislation to implement the consumption tax cut to an extraordinary session of the Diet, the country’s parliament, expected to be convened in autumn. This would be the first reduction in consumption tax since its introduction in 1989. “We aim for early enactment of the legislation,” Prime Minister Sanae Takaichi, who heads the LDP, told reporters at the prime minister’s office, expressing her confidence that her administration can sufficiently meet fiscal demands by making drastic efforts to secure financial sources. The tax cut plan was formally approved at the LDP’s decision-making General Council at an extraordinary meeting Wednesday. The party and the JIP then held a meeting of their policy leaders to complete the ruling bloc’s procedures on the tax cut plan. The consumption tax cut is seen as a temporary measure until the envisioned system to provide income-linked benefits is fully introduced in fiscal 2029. This system is aimed at reducing tax and social insurance premium burdens on low- and middle-income households and promoting employment, serving as the first step toward the future introduction of a refundable tax credit system. The plan to cut the tax rate virtually to zero was advocated by the ruling bloc during meetings of the cross-party National Council on Social Security. It was included in an interim report adopted by the council, together with the introduction of cash benefits proposed by opposition parties. The expected revenue decline caused by the consumption tax cut is seen reaching about 10 trillion yen over the two years. Takaichi had said that the government would secure revenue sources mainly by reviewing special tax measures and subsidies, pledging not to rely on deficit-covering bonds, though details were not specified. Concerns run deep in the LDP, however. During internal discussions on the plan, some LDP members called for specifying funding sources to cover the revenue decline. Former party tax panel leader Yoichi Miyazawa and former Defense Minister Gen Nakatani, both opposed to the tax cut plan, were absent from Wednesday’s General Council meeting. Criticism has also been raised that the tax reduction may undermine revenue sources for social insurance programs. Speaking to reporters Wednesday, Takaichi promised not to let the tax cut negatively affect the programs. The ruling coalition does not hold a majority in the House of Councillors, the upper chamber of the Diet, the country’s parliament. As most opposition parties object to the plan, “related legislation may be rejected by the Upper House,” an LDP executive said. END [Copyright The Jiji Press, Ltd.]