Japan Plans to Cut Food and Beverage Consumption Tax to 1% for Two Years from April 2027

Japanese Prime Minister Sanae Takaichi met with Deputy Prime Minister Taro Aso and Secretary-General Shunichi Suzuki at the Liberal Democratic Party (LDP) headquarters on the morning of July 28, exchanging views on issues including the consumption tax reduction on food and beverages. At an LDP executive meeting before the talks, Takaichi stressed that discussions at the National Conference on Social Security had entered their final stage, with adjustments still ongoing, and stated that "a decision will be made when it is time to decide."

The Japanese government plans to reduce the consumption tax rate on food and beverages from the current 8% to 1% for a period of two years starting April 2027. A cross-party panel previously tasked with discussing the measure abandoned efforts to reach a consensus on July 27, as members disagreed on funding methods and whether the tax cut should be made permanent.

The government decided to proceed broadly along the lines of a proposal put forward by the panel's chair in June, which includes reducing the food consumption tax to 1% effective April 2027, and providing cash subsidies to eligible households starting as early as autumn 2027, at an annual cost of about 600 billion yen. These subsidies would largely offset the remaining 1% food tax burden for those households. The choice to lower the tax to 1% rather than 0% was made to reduce the burden on retailers who would need to extensively reprogram their cash registers. A previous working group estimated that implementing a 0% rate would require about one year, while a 1% or other integer rate could cut the programming time by roughly half, leading policymakers to ultimately adopt the 1% plan.