Tokyo: Japanese Prime Minister Sanae Takaichi on Thursday announced a plan to reduce the consumption tax on food and beverages to 1% for two years beginning next April, as her government seeks to ease the burden of rising living costs while encouraging greater workforce participation.

According to Anadolu Agency, the proposal was unveiled during an extraordinary meeting of executives from the ruling Liberal Democratic Party (LDP). Takaichi said the initiative marks a shift from previous relief measures that relied on uniform cash payments, which had faced criticism for failing to adequately target those most in need.

Instead, the government plans to integrate tax reductions with social insurance contributions and cash benefits to provide support based on income levels and other individual circumstances. "We believe this system will alleviate the burden on low- and middle-income working-age individuals, thereby increasing their take-home pay, while also mitigating work disincentives - such as those caused by annual income thresholds - thereby addressing the urgent need to encourage workforce participation," Takaichi said.

The prime minister has repeatedly stressed that the reduced tax rate would remain in place for only two years before returning to the current 8% rate on food and beverages, describing the measure as a temporary bridge until a broader refundable tax credit system is introduced.

The proposal forms part of the government's broader strategy to cushion households from inflation and rising living costs, although it has also drawn criticism from lawmakers and economists concerned about its impact on Japan's already strained public finances. The government is expected to finalize the plan in August before submitting related legislation to parliament later this year.

Source: Anadolu Agency