Japan to reduce food consumption tax to 1% starting 2027

The Japanese government has decided to reduce the consumption tax on food items to 1% starting in April 2027 for a two-year period. To achieve a ‘real zero’ tax rate for low-to-middle-income households, the remaining 1% will be provided through direct benefits. This marks the first reduction in the consumption tax rate since its introduction in 1989.

Prime Minister Sanae Takaichi has championed this policy as a key measure against rising prices. However, the plan faces significant criticism and practical challenges. Economists and officials have raised concerns regarding the loss of approximately 5 trillion yen in annual tax revenue, which is a critical pillar for social security funding. There are also fears that the tax gap between food (1%) and dining out (10%) could devastate the restaurant industry and disrupt food culture.

Furthermore, critics argue the benefits may disproportionately favor wealthy households, as high-income earners receive larger absolute tax savings. Retailers have also expressed concern that they may not pass the full tax savings to consumers, instead using the timing to offset rising costs from inflation and a weak yen. The government intends to submit related legislation during the upcoming extraordinary Diet session.