Japan Cuts Consumption Tax on Food to 1% for Two Years

Japan's Cabinet approved a plan to lower the consumption tax rate on food and beverages from 8% to 1% for two years starting next April. This reduction is part of an inflation-relief scheme aimed at supporting households facing persistent inflation.

Prime Minister Sanae Takaichi's government plans to enact related legislation through an extraordinary parliamentary session likely to begin in the fall. The plan involves cash handouts to low- and middle-income earners to realize 'effectively zero' tax burdens.

Takaichi has yet to identify a specific revenue source to offset the tax cut, but vows to secure necessary funding through budgetary reforms such as reviewing nontax revenues and subsidies without relying on deficit-covering bonds.

The two-year tax reduction is estimated to result in around 10 trillion yen ($63 billion) in lost revenue, a vital funding source for social security. To make up for the loss of tax revenue, Takaichi plans to conduct a 'zero-base' review of the government's budget.