The Cabinet of Japan has approved a bill to temporarily reduce the consumption tax on food and beverages from 8% to 1% for two years from fiscal 2027, as the government seeks to ease household financial pressure amid rising living costs.
The bill also introduces annual cash benefits for low- and middle-income earners. The government plans to submit the legislation to the ongoing extraordinary session of the Diet, Japan’s parliament, and secure its enactment by the session’s scheduled conclusion on December 12.
The proposed measures are expected to cost approximately ¥10 trillion (US$63 billion) over two years, raising questions about their impact on Japan’s public finances and how the government will cover the anticipated revenue shortfall.
Prime Minister Sanae Takaichi said the measures were intended to provide immediate relief to households facing higher living costs. However, the government has yet to explain how it will finance the tax reduction without issuing deficit-financing bonds.
Opposition lawmakers have questioned the proposed funding arrangements and the eligibility criteria for cash benefits. Concerns have also emerged over the potential impact of reduced consumption tax revenue on local governments.
Takaichi said the government would take measures to protect municipal finances, although she acknowledged uncertainty over how much of the tax reduction would translate into lower prices for consumers.
The proposed change would represent Japan’s first consumption tax rate reduction since the levy was introduced in 1989. The standard rate has stood at 10% since October 2019, while food and non-alcoholic beverages purchased for consumption outside restaurants are generally subject to a reduced rate of 8%.
The government’s proposal comes as households continue to face pressure from rising prices, with the planned reduction intended to lower the tax burden on essential food purchases. If enacted, the measure would temporarily reduce the tax applied to eligible food and beverage products, while the accompanying benefit programme would provide additional support to qualifying households.