Japan Cuts Food Sales Tax to 1% from 8% Through 2029

Japan's government has decided to lower the sales tax rate on food items from the current 8% to 1%, effective from April 2027 for a period of two years. The reduction will apply until April 2029, after which the tax rate will return to 8%.

On October 15, the government approved a major revision to the tax system in a cabinet meeting, with plans to submit related legislation to an upcoming special session of parliament scheduled for early October. The move fulfills Prime Minister Kishida's pledge made during February's lower house election campaign to reduce sales taxes.

The tax cut will be implemented as a temporary measure until 2029, when the new income-linked benefit system is fully introduced. During fiscal years 2027 and 2028, advance payments of benefits will be made to low- and middle-income workers. Specific income thresholds and payment amounts will be determined later.

Starting in 2029, benefits will be paid twice a year: six months' worth in April for existing recipients, followed by another six months' payment in autumn based on the previous year's income data. From 2030 onward, payments will be made annually in the fall. Those who have registered their public benefit accounts will receive payments without needing to apply separately.

The government expects that consumers may view the return of the tax rate to 8% in 2029 as a de facto 7-point tax increase. To alleviate household burdens and prevent consumption slowdown, the government plans to use income-linked benefits.

Annual revenue loss due to the food sales tax cut is projected at 430 billion yen. The government has decided not to rely on special bonds but will cover costs through subsidies, tax system adjustments, and increased non-tax revenues. Specific measures will be determined during the preparation of the fiscal year 2027 budget.

Local tax revenue losses due to the tax rate change will be fully compensated by the central government. Farmers and fishery workers will receive payments based on their sales volume, while restaurants will get support for expanding business through takeout services. For a two-month period before and after the tax rate change, businesses may display prices with or without the tax included.