Japan’s PM Takaichi vows to restore consumption tax after planned 2-year cut

TOKYO - Prime Minister Sanae Takaichi on Monday promised to restore the consumption tax rate to its original 8 per cent after a planned two-year cut, amid prolonged inflation and concerns over Japan's further worsening fiscal health, Kyodo News reported.

Takaichi's remarks come after her ruling Liberal Democratic Party proposed last week reducing the consumption tax rate on food and beverages to 1 per cent for two years from April 2027, rather than cutting it to zero as pledged during the general election campaign.

"I clearly state that we will bring it back to where it was two years after implementing (the reduction)," Takaichi said at a House of Representatives committee session, when asked by Ken Tanaka, a lawmaker from the opposition Democratic Party for the People, her party's intentions.

Tanaka said it would be difficult to restore the tax rate once lowering it, since this would be taken as a "tax increase," which could spark public backlash.

The LDP made the proposal at a cross-party national council on taxation and social security as a draft for an interim report on the issue to be compiled later this month after months-long discussions.

Takaichi has indicated that she wants to move ahead with the tax reduction "as soon as possible" once the national council presents the interim report.

The LDP vowed to cut the consumption tax on food products to zero for two years in its campaign for the lower house election in February. Its junior coalition partner, the Japan Innovation Party, and many opposition parties made similar promises to help households counter inflation.

With Japanese government bond yields surging to their highest levels in decades and the Japanese yen remaining weak, however, the tax cut plan could further fuel concerns about the nation's fiscal health, which is the worst among the Group of Seven economies.

The 1 per cent tax rate plan has emerged as changing the rate to zero would require more time to adjust retailers' cash register systems.

To keep its promise by making the tax rate effectively zero, the LDP also proposed cash handouts annually totalling 600 billion yen (US$3.7 billion), equivalent to the expected revenue from a 1 per cent tax on food. - BERNAMA-KYODO