Japan's ruling Liberal Democratic Party is pushing to pass a bill this week that would cut the consumption tax on food and drink from 8% to 1% for two years from April 1, 2027, and pay a new cash benefit to low- and middle-income workers, according to Jiji Press.

For households, the measure would change the tax on everyday grocery bills. The worker benefit alone would cost 600 billion yen a year, according to the government's plans, and the bill is one of the main pieces of legislation before the Diet under Prime Minister Sanae Takaichi.

What Japan's consumption tax bill does

The Cabinet approved the bill on Oct. 9 and submitted it to the 222nd extraordinary session of the Diet the same day, according to the Cabinet Secretariat. Its long official title describes it as easing the burden of taxes and social insurance premiums.

The bill has two parts. The first sets the consumption tax rate on food and drink that already qualify for the reduced rate at 1% for two years, starting April 1, 2027. The Finance Ministry describes it as a temporary cut covering fiscal 2027 and fiscal 2028.

The second part creates a worker benefit linked to income. The government plans to start it early, in fiscal 2027, funded within the revenue equal to 1 percentage point of consumption tax on food. Combined, the two steps are meant to bring the effective consumption tax on food to zero, the Cabinet Secretariat said.

Both are a bridge. A full system of income-linked benefits, which the government calls a refundable tax credit, is due to start in fiscal 2029, according to a basic policy the Cabinet adopted on Aug. 5. The Cabinet Secretariat said the aim is to raise take-home pay for working people on low and middle incomes and to ease the so-called income walls, the earnings thresholds at which some people cut their hours to avoid higher taxes and premiums.

How the worker benefit would work

Government documents given to a board meeting of the lower house Financial Affairs Committee on Oct. 30 put the benefit at about 5,000 yen a year for low-income workers, Jiji Press reported.

Working people earning 1.19 million yen or less a year would receive a fixed amount. The benefit would rise gradually as annual income approaches 1.6 million yen, then taper off once income passes a certain level, according to the report. The government plans to pay 600 billion yen a year in total, the amount raised by 1 percentage point of consumption tax.

The documents did not set out a final schedule for payments, and details can still change while the Diet debates the bill. Under the August basic policy, national and local authorities are to work out how to share the job of running the benefit, and the government is holding talks with local governments through a dedicated forum, the Cabinet Secretariat said.

Takaichi, the lower house and the Dec. 12 deadline

The LDP hopes to hold committee and plenary votes in the House of Representatives as early as Friday, Nov. 6, so the bill can go to the upper house and be enacted before the session ends on Dec. 12, Jiji Press reported on Oct. 31.

Opposition parties want Takaichi to attend deliberations at the Financial Affairs Committee. They are seeking about 30 hours of debate in the lower house. Deliberations will total 28 hours after the committee meets on Wednesday, Nov. 4, not counting time spent hearing experts, according to the report. Yuichi Goto, who handles parliamentary affairs for a centrist group of the Democratic Reform Party and Komeito, proposed that the prime minister attend for two hours. The ruling and opposition sides are set to discuss her attendance at that Wednesday meeting.

The upper house is preparing as well. The LDP and the opposition Constitutional Democratic Party of Japan agreed on Oct. 30 that the House of Councillors will set up a special committee on the tax bills, expected on Wednesday, Jiji Press reported. It will have 40 members, split 20 to 20 between the two camps, with an LDP lawmaker in the chair. Because the chair normally does not vote, it is unclear whether the committee will approve the bills.

"The minimum conditions for beginning deliberations have been met," said Yoshihiko Isozaki, who heads parliamentary affairs for the LDP in the upper house.

For background on Japan's wider fiscal and currency debate, see the Capital Times editorial Japan Has Spent 27 Trillion Yen Defending Its Currency. Policy Must Do the Rest. For now, the dates to watch are Wednesday's meetings in both houses and the lower house votes the LDP hopes to hold on Friday. If the bill is enacted by Dec. 12, shoppers would see the 1% rate on food from April 1.

This article is for information only and is not tax advice.