Japan PM Takaichi Announces Plan to Lower Food Consumption Tax to 1%

Prime Minister Sanae Takaichi has announced her intention to reduce the consumption tax rate on food and beverages from 8 percent to 1 percent for two years starting next April. To effectively eliminate the tax burden for low- and middle-income earners, the government plans to couple this reduction with cash handouts.

The plan was conveyed during a meeting of ruling Liberal Democratic Party (LDP) executives. Takaichi has directed senior officials to accelerate preparations, aiming for a Cabinet decision as early as next month and seeking the passage of related bills during an extraordinary Diet session likely to be convened in the fall.

This policy follows campaign pledges by the LDP and other parties to slash food taxes amid elevated prices. While a zero percent rate was initially considered, ruling parties shifted to 1 percent because adjusting retailers' cash register systems for a zero rate would require more time. To fulfill the original pledge of zero tax, annual cash handouts totaling 600 billion yen will be provided to eligible households.

The measure is expected to create a revenue loss of approximately 10 trillion yen over two years, raising concerns regarding Japan's fiscal health and the funding of social security. Opposition parties have criticized the temporary nature of the cut, suggesting it may lead to a de facto tax hike in the future. The plan follows months of discussions by the national council on social security, which failed to reach a consensus, leaving the final decision to the prime minister.