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🇰🇷 South Korea /Economy & Trade

Japan eyes 1% food tax for two years to combat inflation

From Hankyoreh · () Korean

Translated from Korean, summarized and contextualized by DistantNews.

At a glance

News Sources not specified New plan
  • The Japanese government is finalizing plans to reduce the consumption tax on food products from 8% to 1% for two years, starting next spring.
  • This tax cut, a campaign promise by Prime Minister Sanae Takaichi, aims to alleviate the burden of high prices on consumers.
  • The plan faces challenges including the cost of system upgrades for supermarkets and potential resistance when the tax is eventually raised again, alongside concerns about fairness for other industries.

Japan's government is moving forward with a plan to slash the consumption tax on food from 8% to 1% for two years, aiming to ease the pinch of rising prices on households. The final decision on the reduced rate is expected soon, with the goal of implementing the tax cut by April next year. This move stems from a campaign pledge by Prime Minister Sanae Takaichi to offer relief to consumers.

The industry side submitted an opinion that it would take about half a year to modify the system for a 1% food tax rate, and up to a year for a 0% rate.

— Yomiuri ShimbunReporting on the technical challenges and timeline for implementing the tax reduction.

The initial promise was to eliminate the tax entirely, but technical limitations with point-of-sale systems in supermarkets have made a 0% rate unfeasible. Many systems are not equipped to handle a zero tax input, requiring significant upgrades. Industry estimates suggest that adapting systems for a 1% tax could take about six months, a faster solution than the year needed for a 0% rate.

However, the tax reduction presents a significant fiscal challenge. Lowering the food tax by 7 percentage points is projected to reduce annual tax revenue by approximately 4.4 trillion yen ($28 billion). This comes at a time when Japan faces increased budget pressures, including demands to boost defense spending. The temporary nature of the tax cut, set for two years, also raises concerns about public backlash when the tax is eventually reinstated.

The consumption tax cut, which lowers the food tax by 7 percentage points, is expected to reduce annual tax revenue by about 4.4 trillion yen.

— The HankyorehEstimating the financial impact of the proposed tax cut on government revenue.

Furthermore, the policy could create fairness issues. Limiting the tax cut to groceries means industries like restaurants and general merchandise will still face the full 10% consumption tax. Analysts warn that the policy's delayed implementation might not be a swift enough measure for immediate relief and could potentially exacerbate inflation, negatively impacting citizens in the long run.

The consumption tax cut policy, which will be implemented in ten months, is too slow to be considered a measure for immediate relief for the people.

— Nomura Research InstituteCritiquing the speed and effectiveness of the tax cut as an immediate measure for citizens.
DistantNews Editorial

Originally published by Hankyoreh in Korean. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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