Japan to reduce food consumption tax to 1% starting 2027

The Japanese government has decided to reduce the consumption tax on food from 8% to 1% for a two-year period starting in April 2027. This decision, led by Prime Minister Sanae Takaichi, will be submitted to the Diet for legislation this autumn. If implemented, it would mark the first reduction in the consumption tax since its introduction in 1989.

While intended to alleviate pressure on citizens, the policy faces significant criticism and logistical concerns. Major industry groups, including the Japan Food Service Association, have expressed opposition due to the disparity between food tax rates and the 10% rate maintained for dine-in services. Some companies, such as Skylark Holdings, have suggested alternative support like meal vouchers, citing the failures of previous programs.

Economists warn that the tax cut may be offset by rising prices and could create a massive fiscal deficit, estimated at approximately 10 trillion yen over two years. There are also concerns regarding market stability, with some political figures warning of potential spikes in government bond yields and yen depreciation. Additionally, the difficulty of returning to original tax rates after the two-year period poses a risk to future economic stability.