Japan to Cut Food and Beverage Consumption Tax to 1% for Two Years from April 2027
Japan's government approved a tax reform outline on Tuesday to lower the consumption tax on food and beverages from 8% to 1% for two years starting in April 2027, responding to persistent price increases. It is Japan's first consumption tax cut since the levy was introduced in 1989. The outline rules out deficit bonds to cover a funding gap of about 10 trillion yen, with the central government to fully compensate local authorities.
The Japanese government held an extraordinary cabinet meeting on Tuesday and finalized a tax reform outline that lowers the consumption tax rate on food and beverages from 8% to 1%. The new measure will take effect in April 2027 and run for two years in response to sustained price increases. It marks Japan's first consumption tax cut since the levy was introduced in 1989. The government will draft the necessary legislation based on the outline and submit it to an extraordinary session of the Diet to be convened in October.
For the funding gap of about 10 trillion yen (about HK$506 billion) over the two years, the outline states that the government will "not rely on special bonds (deficit bonds)," while leaving unspecified how the fiscal shortfall will be filled. The reduction in local government revenue will be fully covered by the central government through special fiscal transfers.