Takaichi to introduce 1% food tax proposal from April 2027 for two years

2026-07-30

Combining tax cuts and payments

Prime Minister Sanae Takaichi said on Tuesday she intended to cut the consumption tax rate on food to 1% from the current 8% for two years starting in April 2027. The burden equivalent to the 1 percentage point cut would be offset with payments to low- and middle-income earners, effectively bringing the cost to zero. She gave no specific funding plan, saying only that she would not rely on deficit-financing government bonds.

She spoke to reporters at the prime minister's office. Before that, she instructed an extraordinary executive meeting of the Liberal Democratic Party to compile the proposal as the party's view. The policy for the government and ruling coalition will be decided in early August, and related bills will be submitted to an extraordinary session of the Diet in autumn. A reduction in the consumption tax rate would be the first since the levy was introduced in 1989.

A bridge until new payments in fiscal 2029

The consumption tax cut was positioned as a bridge until a new income-linked payment program that will start in fiscal 2029. 'After careful consideration and thinking it through to the end, I chose what I judged to be the best option,' she said, stressing that it was also meant as a measure against rising prices.

Based on the pledge of a zero rate made in the lower house election, the annual cost of about 600 billion yen for the 1 percentage point cut will be introduced early from June 2027 as income-based payments for low- and middle-income earners. The new payment program will be fully implemented from April 2029, and the system design will be included in a bill to be submitted to the extraordinary Diet session. The prime minister said the plan combines tax and social insurance burdens with cash payments to deliver support according to income and other factors.

Policy to restore the rate after two years

The prime minister said clearly that the rate would be restored two years after the tax cut. 'From the standpoint of achieving fiscal sustainability and securing market confidence, I will take responsibility and make sure the rate is restored two years later,' she said. There will be no sunset clause allowing the cut to continue depending on economic conditions.

She did not make clear how the measure would be funded. 'We will secure it without relying on special government bonds so as to win market confidence,' she said, adding that both spending and revenue would be reviewed while monitoring tax revenue trends. She also referred to a review of tax incentives and subsidies, as well as securing non-tax revenue, saying the government would respond to fiscal needs while appropriately restraining the annual amount of new bond issuance.

Details on funding were effectively put off. A senior government official said, 'It would have been better to show the funding items, but the matter will be considered through the end of the year.' The government also plans to consider support measures for farmers and the restaurant industry affected by the consumption tax cut.

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