Japan’s government moves to slash food tax to ease prices

Japan's government on Friday approved a bill to cut the consumption tax on food and nonalcoholic drinks from 8% to 1% for two years, seeking to ease pressure on households facing rising food prices.

The legislation would also introduce an income-linked cash benefit system for lower earners, Kyodo News reported.

Prime Minister Sanae Takaichi's government has submitted the bill to parliament and aims to secure parliamentary approval during the current session, which ends Dec. 12, before implementing the tax cut in April 2027.

It would be Japan's first consumption tax reduction since the levy was introduced in 1989.

Japan's standard consumption tax rate is 10%, with a reduced rate of 8% applying to food and beverages, excluding alcohol and dining out.

The proposed cut is expected to reduce tax revenue by about 10 trillion yen ($63 billion) over two years, according to Kyodo News.

Takaichi has argued that the measures would provide relief from rising living costs, but the government has yet to detail how it would cover the revenue shortfall.

Opposition lawmakers have questioned how the shortfall would be covered. The plan has also raised concerns about local government finances, as municipalities receive a share of consumption tax revenue.

"We will take measures to ensure that local governments' fiscal management is not adversely affected," Takaichi told the Senate on Friday.

On how to secure funding, Takaichi said it would be considered "given the broader framework of budgetary reforms to be pursued going forward."