TOKYO: Japanese Prime Minister Sanae Takaichi announced her intention to proceed with a sharp two-year cut on an 8 per cent sales tax on food items, a senior ruling party official said on Thursday (Jul 30), a move set to strain the country’s worsening finances.
In a meeting with ruling party executives, Takaichi ordered them to proceed with preparations to cut the levy to 1 per cent for two years from April next year, the official told reporters.
With the premier’s order, the ruling Liberal Democratic Party (LDP) will start discussions at its tax panel to seek consensus.
The government will likely finalise the tax cut plan in a Cabinet meeting in early August, and submit relevant legislation in a parliament session convening in autumn.
LDP Secretary-General Shunichi Suzuki told reporters there was strong political determination to move the tax rate back up after two years.
He also said an overshoot in overall tax revenues will help fund the temporary cut in the food levy, without needing to resort to debt issuance.
Japan levies an 8 per cent consumption tax on food and a 10 per cent rate on other goods and services, key sources of funding for rising social welfare costs among a rapidly ageing population.
If implemented, it would be the first time for Japan to lower the sales tax rate since its introduction in 1989.
Takaichi has pledged to suspend the 8 per cent levy on food for two years as a temporary step before introducing a new payout system targeting low and middle-income households, as part of steps to cushion the blow from rising living costs.
The idea, however, has drawn pushback from ruling and opposition lawmakers on concern over the impact on Japan’s worsening finances, as the administration has not explained how it plans to fill the revenue shortfall.