Japan’s government is exploring the possibility of reducing the consumption tax on food products from the current 8% to 1%, with plans for this change to take effect for two years starting in April 2027. This move comes as a quicker alternative to an earlier proposal of a zero-tax rate, which the ruling Liberal Democratic Party had promised to pursue. Prime Minister Sanae Takaichi had also shown support for implementing the zero-tax rate within the fiscal year 2026.
However, technical challenges have arisen, complicating the execution of the zero-tax rate plan. System developers have reportedly informed policymakers that the transition to a zero-tax system would necessitate approximately a year to update cash registers and payment systems. Conversely, reducing the rate to 1% could be accomplished within six months, making it a more feasible option in the short term.
The proposal for a 1% tax rate has garnered support within the government as a more immediate way to alleviate the cost-of-living pressures on consumers. In addition to the tax reduction, officials are considering mechanisms to return the revenue generated from the reduced tax rate back to the public through subsidies and other support measures.
Meanwhile, additional measures are under consideration to aid the restaurant sector, which would continue to be subject to the standard 10% consumption tax rate. The government is expected to reach a final decision on the matter later this month, with plans to submit related legislation to parliament during an extraordinary session anticipated in the autumn.
