Japan Cuts Food Consumption Tax to 1%

TOKYO, Aug 5 (Reuters) - Japan's government on Wednesday signed off on Prime Minister Sanae Takaichi's flagship plan to slash the consumption tax on food, pressing ahead despite mounting concerns over the nation's already strained finances.

The ‌cabinet endorsement followed unanimous approval by the ruling Liberal Democratic Party's general council earlier in the day, paving the way for the tax cut to take effect in April 2027, subject to parliamentary approval.

If adopted, the measure would be ​Japan's first time lowering the sales tax since it was introduced in 1989.

The plan would ​slash the consumption tax on food items to 1% from 8% for two ⁠years, supplemented by a benefit payment equivalent to the remaining 1% that would effectively eliminate the ​tax burden on food purchases.

The tax cut, a centrepiece of Takaichi's efforts to ease the impact of ​rising living costs on households, creates a revenue shortfall of roughly 5 trillion yen ($31.7 billion), intensifying pressure on the government to explain how it plans to fund the shortfall.

"To maintain market confidence, we will secure the resources needed (to fund ​the tax cut) without relying on deficit-financing bonds, through a comprehensive review of both expenditures and revenues, ​including subsidies and tax breaks," Finance Minister Satsuki Katayama told reporters on Wednesday.

- Authors: Takaya Yamaguchi, Yoshifumi Takemoto and Makiko Yamazaki