Japan’s government is introducing a policy to ease the financial burden on low- and middle-income households as a temporary reduction in the consumption tax on food is set to expire in 2029. The plan involves an advance cash benefit that will be implemented when the tax rate reverts from 1% back to 8% at the end of the two-year reduced rate period starting in April 2027.
Under this initiative, the consumption tax on food will be significantly lowered from the current 8% to 1% for a duration of two years, beginning in April 2027. As this reduced rate concludes in April 2029, eligible households will receive half of their annual benefit in advance, mitigating the financial impact of the tax returning to its original rate. The benefit program is income-based, with payment amounts adjusted according to household income levels and the number of children.
The government anticipates starting the income-based benefit system in April 2027, with projected annual payments reaching approximately ¥600 billion, equivalent to $4 billion, over fiscal years 2027 and 2028. The finalized policy is expected by September, with the government planning to present the relevant legislation during an extraordinary parliamentary session slated for October.
To finance this tax reduction, the government intends to reassess subsidies, special tax measures, and overall government expenditures rather than resorting to deficit-financing bonds. The specific funding sources, however, have not yet been determined. Additionally, the government is preparing to introduce supportive measures for sectors like agriculture, forestry, fisheries, and the restaurant industry, which may be impacted by these tax changes. Retailers will also be granted extended periods to adapt to the tax-inclusive price display requirements.