Temporary cut to food tax April 2027 from 8% to 1%
On 15 September, the Japanese Cabinet approved a cut Japan’s reduced Consumption Tax rate on food from 8% to 1% from 1 April 2027. This is a short term measure for two years, to be replaced in 2029 by a new refundable tax credit system.
Prime Minister Sanae Takaichi has made a food consumption tax cut commitment in her recent election victory. This proposal still requires cross-party support.
The measure will cut food and beverages Consumption Tax for a limited period, Changing the tax rate would place a heavy burden on retailers, as they would need not only to update their cash register systems but also replace price tags in stores.
Cut to 1% offer route to fast implementation
This structured cut to 1% (instead of zero) is seen as a more practical way to bring in a Consumption Tax rate reduction quickly. This is because of technical limits on Point of Sale systems, unable to compute a 0% rates.
The measure is intended to address cost-of-living pressures on households, but it would come at a significant fiscal cost. Government estimates suggest that removing the 8% tax on food sales would reduce annual tax revenues by around ¥5 trillion.
Japan’s current standard Consumption Tax rate is 10%, with an 8% reduced rate for food. Similar to VAT, Consumption Tax rose to 10% in 2019 to meet the costs associated with an ageing population.
Economists remain divided. They warn that acting prematurely could lead to policy missteps. Government chould first consider support like loans to small businesses rather than rushing into tax cuts or cash handouts, especially as the long-term economic fallout from U.S. tariffs remains uncertain.
