Japan to Cut Food Consumption Tax to 1% for Two Years from 2027, Funding Questioned
The Japanese government has decided to reduce the consumption tax on food and beverages from 8% to 1% for two years starting April 2027, with a bill to be submitted to the autumn extraordinary Diet session. The policy, which faces criticism over its estimated 5 trillion yen funding gap, would apply to the consumption tax, which operates on a value-added tax mechanism. Unlike the accommodation tax, where hotels collect and remit the levy on behalf of guests, the consumption tax is collected at each stage of production and distribution.
The government's cabinet meeting decided to reduce the consumption tax rate on food and beverages from 8% to 1% for two years starting April 2027, and plans to submit a bill to the autumn extraordinary Diet session. The policy faces criticism over the issue of funding, estimated at 5 trillion yen.
The consumption tax is legally named 'consumption tax,' but its collection mechanism follows the international value-added tax (VAT) approach. Compared with the accommodation tax, where the guest is the taxpayer and the hotel acts as a special collection obligor, collecting the tax and remitting it to the local government, the consumption tax is levied at each stage of the supply chain.