Japan to Cut Food Sales Tax to 1% From 8%, Offer Cash Payments to Low- and Middle-Income Households

Japan's government will cut the consumption tax on food products to 1% from the current 8% for two years starting in April 2027. It will also provide separate cash payments to low- and middle-income households.

The government approved the outline of the tax revision at a Cabinet meeting on Sept. 15. It plans to submit the related bill to an extraordinary Diet session set to be convened in early October and aims to secure passage by year-end. The measure fulfills a consumption-tax cut pledge made by the Sanae Takaichi administration in the House of Representatives election in February.

The consumption tax on food products will be lowered to 1% in April 2027 before returning to 8% in April 2029. The tax cut is a bridge measure that will remain in place until an income-linked benefit program is fully launched in fiscal 2029. In fiscal 2027 and 2028, the government will make advance payments primarily to low- and middle-income workers. Specific income thresholds and payment amounts will be set later.

In fiscal 2029, the government will distribute the benefits in two installments. It will first pay six months' worth in April to existing recipients, then recalculate eligibility using the previous year's income data and pay the remaining six months in the fall. From fiscal 2030, payments will be made once a year in the fall. People who have registered a bank account to receive public funds will be paid without filing a separate application.

When the consumption tax returns to 8% in 2029, consumers may see it as an effective 7-percentage-point tax increase. The government plans to use income-linked cash benefits to ease pressure on household finances and limit any pullback in consumption.

The food tax cut is projected to reduce annual tax revenue by 4.3 trillion yen. The government plans to cover the shortfall without relying on special deficit-financing bonds, instead drawing on subsidy cuts, revisions to special tax measures and non-tax revenue. Specific measures will be decided during the drafting of the fiscal 2027 budget.

Any decline in local tax revenue caused by the tax cut will be fully offset by the central government. People working in agriculture, forestry and fisheries will receive payments based on sales. Restaurant operators will receive support for business diversification, including the introduction of takeout services. For two months before and after the tax change, the government will also temporarily ease the requirement to display tax-inclusive prices, allowing businesses to show prices based on either the old or new tax rate.

Tokyo=Choi Man-su, Hankyung.com correspondent bebop@hankyung.com