Japan considers food consumption tax cut to 1%

The Japanese government is considering a plan to reduce the consumption tax rate on food from 8% to 1% for a two-year transitional period starting in fiscal 2027. This measure aims to alleviate household burdens during a period of rising prices. To achieve an effective zero-percent rate on food, the government plans to introduce a benefit-linked tax credit program, which is intended to be fully implemented by fiscal 2029.

To mitigate the impact on local authorities, the national government is considering fully covering expected revenue losses through special tax revenue grants. Additionally, the central government proposes to shoulder at least two-thirds of the expenses related to the income-pegged benefit program, with the remaining costs split between prefectural and municipal governments.

Prime Minister Takaichi noted that choosing a tax cut over direct cash benefits is intended to provide faster relief to households and allow for a shorter period for businesses to update their systems. The government and the ruling bloc aim to adopt this tax reform package in mid-September, with a bill expected to be submitted to parliament during an extraordinary session this autumn.