Japan will reduce its consumption tax on food and beverages from the current 8% to 1% for two years starting next April, marking the first cut to the tax since it was introduced in 1989.
Prime Minister Sanae Takaichi announced the plan on Thursday, saying the temporary tax reduction, together with cash handouts for low- and middle-income earners, would effectively eliminate the tax burden on eligible households and help them cope with rising living costs.
The proposal was presented earlier in the day during a meeting of senior executives from the ruling Liberal Democratic Party (LDP). Takaichi instructed party leaders to secure formal approval before seeking Cabinet endorsement by early next month.
Temporary tax relief to support households
The two-year tax reduction is expected to create a revenue shortfall of around 10 trillion yen over the period, raising concerns about Japan’s fiscal position at a time of elevated government bond yields and a weak yen. The consumption tax is a key source of funding for the country’s social security system.
Although the government has yet to identify a specific source of revenue to offset the tax cut, Takaichi said the necessary funds would be secured through fiscal reforms without issuing deficit-covering bonds.
She acknowledged the importance of the consumption tax in financing social security and pledged to restore the tax rate to its original level after the two-year period to maintain fiscal sustainability and market confidence.
However, Takaichi’s term as LDP president is due to end in autumn 2027, leaving uncertainty over whether she will remain prime minister when the tax is scheduled to return to its previous rate in 2029.
Ruling coalition backs plan, but opposition remains within LDP
LDP Secretary-General Shunichi Suzuki said party executives unanimously approved the proposal after Takaichi explained the plan. The ruling party hopes to pass the necessary legislation during an extraordinary Diet session expected this autumn.
The LDP’s coalition partner, the Japan Innovation Party, also agreed to support the proposal and will work with the ruling party as discussions continue between senior leaders.
Not everyone within the LDP supports the move. Former Foreign Minister Taro Kono questioned whether the temporary reduction would actually lower food prices and warned prices could rise sharply once the tax returns to its previous level after two years.
Former LDP election strategy chief Yuko Obuchi also resigned from a senior position in an informal meeting under the party’s tax research commission in protest against the proposal, according to sources familiar with the matter. She has long advocated fiscal discipline.
Shift from zero tax pledge
The LDP won February’s House of Representatives election after pledging to consider reducing the food and beverage consumption tax to zero for two years. The Japan Innovation Party and several opposition parties made similar commitments as consumers faced persistently high prices.
However, the ruling parties later opted for a 1% tax rate after cross-party discussions concluded that retailers would need more time to modify cash register systems for a zero-tax regime.
To honour the original campaign promise, the government plans to provide annual cash handouts totalling 600 billion yen to low- and middle-income households, equivalent to the revenue generated by a 1% food consumption tax.
Cross-party discussions on tax and social security failed to produce a consensus after months of debate, particularly as opposition parties argued that the temporary measure would ultimately lead to a de facto tax increase once the reduced rate expires.
The ruling coalition describes the two-year tax cut as a transitional measure before a new income-linked relief programme for lower-income workers begins in fiscal 2029, following approval during the cross-party negotiations.
Japan has gradually increased its consumption tax over the years to help finance rising social security costs linked to its ageing population. The tax was introduced at 3%, increased to 5% in 1997 and 8% in 2014. Since 2019, the standard rate has been 10%, while food and beverage purchases, excluding alcoholic drinks and dining out, have been subject to a reduced rate of 8%.
