Would a policy that reduces consumption tax on food to zero be effective?

What do you think about a policy to reduce the consumption tax on food to zero?
Food is a daily necessity, so I think there would be great benefits.
By limiting it to food, the impact on tax revenues can be reduced.
Please tell us about examples from other countries.

ChatGPT:

A policy to reduce the consumption tax on food to zero has great benefits in that it reduces the burden on daily necessities. It has been attracting attention as a policy that is particularly considerate to low-income earners and aims to increase consumer purchasing power. On the other hand, there are some operational challenges. We will explain the details below and introduce examples from other countries.

Advantages

1. Reduce the burden on daily necessities
   Food is an item that everyone needs. By reducing the consumption tax to zero, the burden on households can be greatly reduced. In particular, low-income earners have a high proportion of food in their total expenditures, so the actual benefit is large.

2. Improving social fairness
   Reducing the tax burden on daily necessities will improve the sense of fairness of the tax system. This will help to reduce regressivity and thus rectify disparities.

3. The impact on tax revenue can be limited
   By applying the zero tax rate only to food products, it is possible to minimize the impact on overall consumption tax revenue while supporting low-income earners.

4. Economic stimulus effect
   Increasing consumer purchasing power will increase demand, especially in retail and food-related industries, and this could have a positive impact on the entire economy.

Challenges

1. Reduced tax revenue
   As part of the consumption tax revenue will be lost, securing financial resources for social security and public services will be an issue. It may be necessary to compensate with other sources of revenue.

2. Complex definition of the scope of the target
   It is necessary to clearly define the scope that falls under "food products." For example, discussion will be needed on how to handle eating out and processed foods.

3. Increased operational costs
   Applying a zero tax rate will increase the administrative burden of classifying tax rates. There are concerns, particularly for retailers and tax authorities, that it will require system changes and increased complexity of operations.

Examples from other countries

1. United Kingdom
   A zero tax rate is generally applied to food products. However, the standard tax rate (20%) is applied to some items such as eating out and alcoholic beverages. The tax rate is implemented by dividing the target items into smaller categories.

2. Canada
   A zero tax rate is applied to general food products, but the standard tax rate is applied to processed foods, snacks, eating out, etc. This distinguishes between necessities and luxury items.

3. Australia
   No consumption tax is applied to necessities (basic food products), but taxes are applied to eating out and some processed foods.

4. France
   A reduced tax rate (5.5%) is applied to necessities, reducing the burden on food products that are essential to life.

5. Germany
   A reduced tax rate (7%) is applied to food products, and the standard tax rate (19%) is applied to other items.

Applicability to Japan

If Japan were to reduce the consumption tax on food products to zero, the following points would need to be considered:

• Clarify the scope of coverage (e.g., treatment of processed foods and eating out).

• Formulate a financial plan to make up for the reduced tax revenue in other ways.

• Prepare for operational costs and system changes.

Because the reduced tax rate system has already been introduced, a shift to a zero tax rate is technically possible, but careful discussion is required in terms of the impact on finances and fairness.

Conclusion

A policy to reduce the consumption tax on food products to zero is a very effective measure, especially in terms of supporting low-income earners and reducing the burden on daily necessities. However, in order to resolve the reduced tax revenue and operational issues, preparations such as clarifying the items covered and securing other financial resources are necessary.

By referring to examples from other countries and adjusting the scope of application of the zero or reduced tax rate to suit Japan's unique needs, a more effective policy could be realized.