Discussion over Consumption Tax Rate This Fall

Prime Minister Sanae Takaichi revealed her plan to submit bills for consumption tax cut in the extraordinary session of the Diet this fall. She argues that her government is going to reduce consumption tax rate on foods to zero for two years to support households that are suffering from price inflation. However, the opposition parties are still skeptical on her willingness to introduce consumption tax reduction. 

Having finished leaders’ questions in Plenary Sittings, Diet discussion on FY2026 budget bill entered debate at Committee on Budget in the House of Representatives on February 27th. Committee members asked questions in an improvisational manner to find out how the prime minister would promote her reform which was represented by the slogan of “responsible and proactive public finances.”

 

The leader of Centrist Reform Alliance (CRA), Jun-ya Ogawa, asked Takaichi how she would proceed discussion in “national council” on social security, which was established in the government to talk about social security and tax system. The CRA is doubtful on the national council with skepticism that Takaichi may attribute possible failure in introducing consumption tax cut, in case the discussion in the council becomes confused.

 

The CRA proposes a permanent reduction of consumption tax on foods to zero percent. The Democratic Party for the People (DPP) demands halving consumption tax on all goods to 5 percent until rate of salary hike stably exceeds price hike rate. Both opposition parties refrained from joining discussion of the national council, which held its first meeting on February 26th.

 

Takaichi insists on introduction of refundable tax credit (RTC). Former prime minister Yoshihiko Noda of Democratic Party of Japan (DPJ) was an advocate of RTC when he led discussion for reform of social security and tax system in 2012. However, the DPJ lost in the Lower House election in 2012 and Shinzo Abe of Liberal Democratic Party (LDP) took the office of prime minister. Abe administration dismissed RTC and introduced 8 percent of reduced tax rate on foods.

 

One of the main reasons of dismissal of RTC was it would be difficult for the government to know exact income of the people to refund money. The DPJ proposed introduction of individual number for each national to grasp the income, but the idea faced criticism of violation of privacy. However, the idea caused introduction of My Number in 2016, which is personal identification number for health insurance or other purposes.

 

There is no obvious discussion so far on how My Number system should be revised for introduction of RTC. But the government, especially bureaucrats in Kasumigaseki, is highly ambitious to collect information of people’s income. It is likely that discussion on My Number system will be focused on, if introduction of RTC becomes realistic in the national council.

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