Japan’s Cabinet has approved legislation to temporarily slash the consumption tax on food and beverages from 8% to 1% for two years, a move expected to cost the government about 10 trillion yen (US$63 billion) in lost tax revenue.
The proposed tax reduction, scheduled to take effect in April, forms part of a broader package that includes annual income-linked cash benefits for low- and middle-income earners to ease inflationary pressures.
According to Kyodo News, the government aims to secure parliamentary approval during the current extraordinary Diet session, which runs until Dec 12.
If enacted, the measure would mark Japan’s first consumption tax reduction since the levy was introduced in 1989.
Prime Minister Sanae Takaichi said the measures were intended to provide immediate relief to households struggling with rising living costs.
However, the projected 10 trillion yen revenue shortfall has raised concerns over Japan’s fiscal position, with the government yet to explain how it will finance the tax cut without issuing deficit-financing bonds.
Opposition lawmakers have questioned the funding mechanism and eligibility criteria for cash benefits, while concerns have also emerged over potential losses to local government revenue.
Takaichi said the government would take steps to protect municipal finances but acknowledged that the extent to which the tax reduction would translate into lower consumer prices remained uncertain.
Finance Minister Satsuki Katayama said funding sources would be identified during the upcoming budget preparation process.
Japan currently imposes a standard consumption tax of 10%, with a reduced 8% rate on most food and beverages, excluding alcohol and dining out.
The ruling coalition opted for a 1% rate instead of a complete exemption after determining that retailers would require more time to adjust their payment systems to a zero-tax structure.
