Japan approves 111.8 billion yen for food tax reduction and worker support

The Japanese government has approved the use of 111.8 billion yen in reserve funds to prepare for upcoming tax reforms and support systems. A significant portion of these funds, approximately 78.1 billion yen under the Ministry of Economy, Trade and Industry, will be used to assist small and medium-sized enterprises with upgrading POS systems and cash registers to accommodate a temporary reduction in the consumption tax rate on food and beverages.

Starting April 2027, the consumption tax on food and beverages is scheduled to drop from 8% to 1% for a two-year period. To complement this, the government plans to introduce a ‘Worker Burden Reduction Grant’ in fiscal year 2027, aimed at supporting middle-to-low-income workers and mitigating the ‘income wall’ effect. Approximately 32.7 billion yen has been allocated to support local governments in upgrading tax and public funds receipt systems to facilitate these payments.

Looking further ahead, the government aims to implement a more sophisticated ‘tax credit with benefits’ system by fiscal year 2029. This system is designed to combine tax credits with direct cash benefits to provide fine-tuned support based on individual or household income levels. Key challenges for future implementation include accurately capturing various types of income, such as business and financial assets, and determining whether eligibility should be based on individual or household metrics.