1 Percent Consumption Tax Is Proposed

The chairman of interparty conference on consumption tax cut made a presentation for introducing 1 percent of new tax rate on foods. Although Prime Minister Sanae Takaichi promised in campaign of Lower House election that the rate should be zero percent, the leading parties are pushing 1 percent for a quick start of new rate. The opposition parties argue that the proposal was not a consensus beyond the party lines. 

To counter opposition parties’ policy for eliminating consumption tax on foods, Takaichi, as the president of Liberal Democratic Party (LDP), proposed zero percent consumption tax on foods for two years in the Lower House election in February. After the election, Takaichi explained that two-year moratorium of consumption tax on foods would be an interim measure until the government introduces refundable tax credit.

 

The details of the system were discussed in National Council on Social Security, a discussion body by representatives of parties that approved refundable tax credit. However, discussion in the council was gradually deviated from Takaichi’s original idea. It was realized that eliminating consumption tax for foods would take one year to introduce, while reduction to 1 percent would do six months. Refundable tax credit was replaced by benefit for low-income families, because of complication of changing tax system.

 

The chairman of the national council, LDP tax policy chief Itsunori Onodera, made a proposal to the parties along with that discussion. It proposed 1 percent of consumption tax on foods for two years beginning April 2027. The government will provide low-income families with benefit equivalent to 1 percent consumption tax on foods, which amounts to 600 billion yen. That tax rate will be returned to the current level -- 8 percent in supermarket and 10 percent in restaurants -- in April 2029, and the government introduces new benefit dependent on income of each family as soon as the fall of 2029.

 

The biggest reason of giving up zero percent on foods was because it takes time to replace cash register system of each retailer. 600 billion yen of benefit is an excuse that the government cannot implement Takaichi’s promise of eliminating tax rate. But the true purpose of the government is maintaining permanent tax rate as much as possible. The scenario was written by bureaucrats in Takaichi government.

 

Onodera’s proposal does not reflect discussion by the parties in the national council. The opposition parties were apparently frustrated with it. The Centrist Reform Alliance argues that resumption of current tax rate in April 2029 will effectively be a tax increase and is anxious about side effect of it. The Democratic Party for the People thinks that introducing new tax rate in April 2027 should be too late.

 

For Takaichi, schedule is everything. She hopes that the national council will wrap up its interim report by the end of June, the government will authorize it in mid-July, necessary budget for fiscal year 2027 will be requested by the end of August, the related bill will pass the Diet in extraordinary session in September, and the retailers will start its replacement of cash registration system in October. Making consensus beyond party lines is left behind.