Japan Approves Plan to Cut Consumption Tax on Food and Beverages

The Japanese government approved a tax reform package on Tuesday that will reduce the consumption tax on food and nonalcoholic beverages from 8 percent to 1 percent for two years starting in April 2027. This measure aims to ease the burden of rising prices and marks the first consumption tax cut since the system was introduced in 1989. Prime Minister Sanae Takaichi's government intends to submit related legislation to parliament during an extraordinary session expected in October.

Finance Minister Satsuki Katayama stated that the government will not rely on deficit financing bonds to cover the estimated 10 trillion yen revenue shortfall, as the administration seeks to maintain market confidence. A concrete funding plan is expected by the end of this year. The package also includes an income based benefit for low and middle income earners starting in fiscal 2027, with payments totaling approximately 600 billion yen per year for two years. Additionally, the ruling Liberal Democratic Party and the Japan Innovation Party pledged support for restaurants and small farmers who may experience revenue declines.

Retailers are expected to begin preparations for the change, including upgrades to cash register systems. While the government has adopted the basic policy, the measure is expected to face debate in parliament, as opposition parties have already raised concerns within a multiparty social security council.