Japan to reduce food and beverage consumption tax to 1% from April 2027

The Japanese government has finalized a plan to reduce the consumption tax rate on food and beverages to 1% for a two-year period, starting April 1, 2027. This temporary measure includes a national tax component of 0.78% and a local consumption tax component of 0.22%.

The scope of the 1% rate will remain consistent with the current 8% reduced tax rate, covering most food and beverages but excluding alcoholic beverages, dining out, and newspaper subscriptions published twice or more per week. To manage the transition in retail pricing, the government has established four special grace periods to allow businesses to update price tags and systems.

Implementation of such tax changes requires significant lead time for legislative amendments, updates to national and local tax systems, and adjustments to corporate accounting and retail point-of-sale software. Additionally, the broader discussion regarding the introduction of a refundable tax credit system involves complex design challenges, including determining eligibility thresholds and integrating data through the My Number system.