Japan approves tax reform outline to reduce food consumption tax

The Japanese government has approved a tax reform outline aimed at addressing rising living costs. The plan proposes reducing the consumption tax on food from 8% to 1% for a two-year period starting in April 2027. To support low-to-middle-income earners, the government intends to implement income-linked benefits, which would involve an initial 1% benefit to achieve a ‘virtual zero’ tax rate on food.

However, the outline has faced criticism for failing to specify concrete funding sources to cover the estimated annual loss of over 4 trillion yen in consumption tax revenue. While the administration claims it will not rely on deficit-financing bonds and will instead look to subsidies, special tax measures, and non-tax revenue, specific details remain unclear. Concerns have been raised regarding the impact on Japan's fiscal health, especially as the national debt-to-GDP ratio exceeds 200% and government budget requests reach record highs.

The plan also includes measures to support local governments, small-scale farmers, and the dining industry, which may be negatively affected by the tax changes. The government is expected to provide more detailed explanations regarding funding and the specific criteria for income-linked benefits during the extraordinary Diet session scheduled for October.