Japan is preparing to implement a strategy aimed at alleviating the financial burden on low- and middle-income families as a temporary reduction in the consumption tax on food is set to expire in 2029. This initiative involves reducing the food tax from 8% to 1% for a two-year period beginning in April 2027. Once this reduced rate concludes in April 2029, the government plans to provide half of the annual benefit to eligible households in advance to ease the transition back to the 8% tax rate.
The income-based benefit program is slated to start in April 2027, with variations in payments based on recipients’ income levels and family size, particularly the number of children. Over the fiscal years 2027 and 2028, the estimated annual disbursements for this program are projected to total around ¥600 billion, which is approximately $4 billion. The government is working towards finalizing the policy by September and intends to present the necessary legislation during an extraordinary parliamentary session anticipated in October.
To fund the tax reduction, the government plans to reassess existing subsidies, special tax measures, and current government expenditures, avoiding the issuance of deficit-financing bonds. However, the precise sources of funding have not yet been determined. This careful approach seeks to ensure that the plan is financially sustainable without increasing the national debt.
Additionally, the government is devising supportive measures targeting sectors likely to be affected by these tax changes, such as agriculture, forestry, fisheries, and the restaurant industry. Retailers will benefit from an extended timeframe to adjust to the requirements for displaying tax-inclusive prices, allowing for a smoother transition as the tax policy evolves.