Japan mulls plan to cut food tax rate to ‘virtually zero’ pct

At a meeting of the working-level panel under the National Council on Social Security, panel chair Itsunori Onodera, head of the ruling Liberal Democratic Party's Research Commission on the Tax System, proposed lowering the tax rate to one pct for two years from next April.

At the same time, Onodera called for refunding tax revenue from a one pct tax rate, or around 600 billion yen per year, as "fine-tuned" benefits linked to income levels for low- and middle-income earners.

The national council aims to reach an interim agreement on the matter by the end of this month to leave the final decision to the prime minister.

The proposal comes as the industry ministry has estimated that it would take up to around 10 months to a year to adjust cash register systems for a zero pct tax rate but only up to around five to six months for a one pct tax rate.

In the proposal, Onodera emphasized the need to take measures as quickly as possible to cope with current inflation.

Meanwhile, the proposal seeks to fully implement a refundable tax credit system, the main goal of the Takaichi administration, around autumn 2029.

The proposed benefits to return tax revenue from a one pct tax rate will be regarded as an initial introduction of the system and will be provided in autumn 2027 and 2028.

However, it remains uncertain whether the national council can agree on the proposal, given objections from opposition parties.

At Wednesday's meeting, the Democratic Party for the People called for focusing on benefits and skipping a consumption tax cut. The Constitutional Democratic Party of Japan questioned the lack of reasoning behind the one pct tax rate.

How to finance the proposed tax cut and benefits, which would require around five trillion yen per year, also remains unclear.