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. The plan was adopted at an extraordinary cabinet meeting 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. The government is slated to adopt a tax system reform package in September and submit legislation to implement the 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. Prime Minister Sanae Takaichi, who heads the LDP, announced the tax cut plan Thursday, together with a measure to provide cash benefits to middle- and low-income earners in order to offset their consumption tax burden for food. The expected revenue decline caused by the tax cut would reach about 10 trillion yen over the two years. Takaichi has said that the government will secure revenue sources mainly by reviewing special tax measures and subsidies, pledging not to rely on deficit-covering bonds, though details were not specified. The tax cut plan was formally approved at the LDP’s decision-making General Council at an extraordinary meeting. The party and the JIP then held a meeting of their policy leaders to finish the ruling bloc’s procedures on the tax cut plan. During internal discussions on the plan, some LDP members voiced concerns about a lack of financial resources to cover it in the tax cut plan and about whether the tax reduction would produce the intended economic effects. The plan was approved unanimously at the General Council meeting. But former party tax panel leader Yoichi Miyazawa and former Defense Minister Gen Nakatani, both opposing the plan, were absent from the meeting. 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 middle- and low-income households and promoting employment, serving as the first step toward the future introduction of a refundable tax credit system. END [Copyright The Jiji Press, Ltd.]