Japan to cut food sales tax to 1% for two years

Japan will temporarily cut consumption tax on food and beverages from eight percent to one percent from next April, Prime Minister Sanae Takaichi said on Thursday.

Takaichi said the lower rate would last for two years and then return to eight percent in 2029, when the government plans to introduce more targeted subsidies for lower-income workers facing higher social insurance premiums.

She said the government would explore measures such as reassessing other tax relief and subsidy programmes to cover the lost revenue. Takaichi said her administration would aim to secure funding without relying on special government bonds in order to maintain market confidence.

Media reports estimated the two-year cut would cost 10 trillion yen, or $61 billion, in lost tax revenue.

The reduction would be the first since Japan introduced the consumption tax in 1989. The measure is aimed at easing cost-of-living pressure, but it comes as Japan's public debt is more than twice the size of its gross domestic product, the highest ratio among advanced economies.

Takaichi pledged in February to eliminate the sales tax on food and beverages, a key part of her manifesto before her lower house election victory.