Japan considers food tax reduction and cash benefits for low-income earners

The Japanese government is considering a plan to reduce the consumption tax on food items to 1% for a two-year period, starting in April 2027. Following this period, the tax rate is scheduled to return to 8% in April 2029.

To mitigate the impact of the tax increase when it reverts to 8%, the government is designing a system to provide cash benefits to middle- and low-income households. Chief Cabinet Secretary Yoshimasa Hayashi indicated that the government may consult with opposition parties regarding the design of this system, including determining the specific scope of eligible recipients and the amount of benefits.

One proposed approach involves distributing a portion of the autumn benefits earlier in April, resulting in two payments per year. Critics and analysts have raised concerns regarding the funding for these tax cuts, the potential burden on local tax revenues, and the impact on sectors such as the dining industry and agriculture.