Japan’s government is preparing to offer upfront financial benefits to low- and middle-income families in anticipation of the expiration of a temporary food consumption tax reduction set for 2029. The proposed initiative intends to decrease the food tax from 8% to 1% for a two-year period beginning in April 2027. As the reduced tax rate concludes in April 2029, eligible households would receive half of their annual benefits in advance to mitigate the effects of the tax reverting to 8%.
Slated to launch in April 2027, the income-based assistance program will determine payments based on recipients’ income levels and the number of children in their households. It is projected that the annual disbursements for fiscal years 2027 and 2028 will total approximately ¥600 billion, which is about $4 billion. The government seeks to finalize this policy by September and aims to introduce the corresponding legislation during an extraordinary parliamentary session expected to convene in October.
To finance the tax cut, the government plans to review existing subsidies, special tax measures, and other government expenditures, steering clear of issuing deficit-financing bonds. Although the exact financial sources have yet to be determined, this approach reflects a commitment to fiscal responsibility while implementing the tax reduction strategy.
Additionally, the government is devising strategies to support sectors such as agriculture, forestry, fisheries, and restaurant businesses, which might be impacted by these tax adjustments. Retailers will also benefit from an extended timeline to adhere to tax-inclusive pricing display requirements, providing them more flexibility to adjust to the new tax conditions.