Consumption Tax Cut Draws Caution in Major Firm Survey

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Japan's consumption tax is 10% in principle, with most food and beverages taxed at a reduced rate of 8%. Prime Minister Sanae Takaichi's administration won the recent Lower House election after pledging to abolish the tax on food and beverages for two years, a plan supporters say would ease household pressure but critics warn could strain public finances and burden businesses.

As tensions in the Middle East fuel concerns about rising prices, few major Japanese companies appear convinced that cutting the consumption tax on food and beverages is the right response.

In a Sankei Shimbun survey of major firms, only 7% said they "support" the tax cut now under consideration by the government. Around 80% were cautious, saying they either "do not support" the measure or "cannot say either way."

"Some effect can be expected as a measure against inflation," one finance and insurance company said. "But the practical burden of changing the system and the impact on public finances cannot be ignored."

Fiscal and Market Risks

In the survey, 28% of companies said they did not support the plan. "The consumption tax is a basic source of government revenue," one finance and insurance company said. "It is not necessarily an appropriate tool for income support."

Many companies also raised concerns about implementation and possible side effects. "The impact would differ between food and beverage purchases and the restaurant industry," one manufacturer said. "Support would be needed for those hurt by the measure."

A wholesale and retail company also warned of market risks. "The measure could be seen as widening the fiscal deficit, creating the risk of a damaging rise in interest rates."

Reflecting those concerns, 51% of respondents said they "cannot say either way," meaning more than half stopped short of endorsing the tax cut.

Energy Subsidies Draw Stronger Support

Inflation is already affecting business activity. In real estate development, 47% of companies said rising material and labor costs have caused delays or forced them to revise plans.

When asked which anti-inflation measures would be appropriate aside from a consumption tax cut, with multiple answers allowed, the most common response was subsidies for electricity, gas, and other fuel costs. Chosen by 44% of companies, such subsidies would help both households and businesses.

The next most popular option was cash payments or similar support for households exempt from resident tax and families raising children, selected by 31%.

Some companies called for more targeted or structural measures. "The government should swiftly introduce systems such as refundable tax credits, creating a framework that can deliver support quickly to households in need," one finance and insurance company said.

A manufacturer urged "structural reforms that allow small and midsize companies to pass on higher costs more smoothly, helping to raise real wages."