Japan is set to implement advance cash benefits for low- and middle-income households as it prepares for the expiration of a temporary reduction in the consumption tax on food in 2029. Under the new policy proposal, the consumption tax rate on food will be decreased from 8% to 1% for a period of two years, starting in April 2027. Once this reduced rate concludes in April 2029, eligible households will receive half of their annual benefit ahead of time, helping to cushion the financial impact of the tax reverting to its original 8% rate.
The initiative, which is income-based, is expected to kick off in April 2027. Payments will be calibrated according to the income levels of recipients and the number of children in their households. For the fiscal years 2027 and 2028, the annual payments are projected to amount to approximately ¥600 billion, or $4 billion. The Japanese government is aiming to finalize this policy by September, with plans to introduce the necessary legislation in an extraordinary parliamentary session scheduled for October.
In terms of funding for the tax reduction, the government intends to reallocate finances by reviewing existing subsidies, special tax measures, and overall government spending, rather than resorting to issuing deficit-financing bonds. However, the specific sources of funding are still under consideration and have not been conclusively determined.
Additionally, the government is planning to introduce measures to support sectors such as agriculture, forestry, fisheries, and restaurant businesses, which may be affected by the changes in tax policy. Retailers will also benefit from an extended timeframe to comply with requirements for tax-inclusive price displays, easing the transition during this period of fiscal adjustments.