Japan to temporarily reduce food consumption tax to 1%

The Japanese government has outlined a plan to reform the consumption tax system, beginning with a temporary reduction in the tax rate for food and beverages. According to a cabinet decision, the consumption tax on food items—currently at a reduced rate of 8%—is scheduled to drop to 1% for a two-year period starting April 1, 2027, through March 2029.

This temporary measure serves as a transition toward a more permanent system known as “tax credits with benefits” (kyufu-tsuki zeigaku kojo). To bridge the gap between the tax reduction and the full implementation of the new system, the government intends to introduce a “Worker Burden Reduction Support Fund” in fiscal year 2027. This fund aims to address the net burden of taxes and social insurance premiums relative to income.

The full-scale implementation of the income-linked tax credit system is targeted for fiscal year 2029. While the specific income thresholds and benefit amounts for the permanent system have not yet been finalized, the government aims to use the interim period to refine the redistribution mechanism. Additionally, measures are being considered to address the needs of non-working elderly populations by 2030.