Japan Proposes Temporary Consumption Tax Reduction on Food and Beverages to 1% from April 2027

Japan has proposed temporarily reducing the consumption tax on qualifying food and beverages from 8% to 1% between April 1, 2027, and March 31, 2029. The proposal has not yet become law, but retailers and POS providers should assess the potential impact on tax rates, receipts and invoicing systems.

The Tax Authority (NTA) and the Ministry of Finance subsequently published explanatory materials describing the proposed changes and their intended application.

Under the proposal, the reduced rate would apply for two years, from April 1, 2027, until March 31, 2029.

The measure is intended to reduce the consumption tax burden on food purchases. However, it remains a legislative proposal rather than an enacted tax change. Implementation depends on the relevant legislation being submitted to, approved by and enacted through Japan's National Diet.

For retailers, Point-of-Sale (POS) software providers and businesses handling food products, the proposed measure could require changes to tax calculation, receipt issuance and invoicing processes.

Japan currently operates a consumption tax system with two principal rates: a standard rate of 10% and a reduced rate of 8%.

The reduced rate generally applies to qualifying food and beverages, excluding alcoholic beverages and restaurant dining, as well as certain qualifying newspaper subscriptions.

Under the new proposal, the consumption tax rate on qualifying food and beverages would temporarily decrease from 8% to 1%.

The standard consumption tax rate of 10% is not proposed to change under this measure.

Importantly, the 1% rate is not yet applicable. Businesses must continue using the existing legally prescribed rates unless the proposed legislation is enacted and becomes effective.

According to the Tax Authority's published outline, the proposed 1% rate would apply to transactions already covered by Japan's existing reduced consumption tax regime for food and beverages.

The proposed scope includes transfers and leases of qualifying food and beverages, imports of qualifying products, and withdrawals of qualifying goods from bonded areas.

For ordinary retail operations, this primarily concerns the sale of qualifying food and beverage products.

The existing reduced-rate framework generally covers food intended for human consumption, including qualifying takeaway food and certain food deliveries.

However, alcoholic beverages and restaurant dining are generally excluded from the existing reduced-rate treatment.

For retailers and hospitality businesses, this distinction is relevant because similar products may receive different tax treatment depending on the nature of the transaction.

For example, qualifying takeaway food may currently benefit from the 8% rate, while food consumed as part of restaurant dining is generally subject to the standard 10% rate.

Under the proposal, the temporary reduction would follow the existing qualifying food and beverage categories rather than automatically applying to all transactions involving food.

The proposed two-year duration creates an additional consideration for retailers and software providers.

If the measure is enacted as described, systems would need to support the temporary 1% rate from April 1, 2027, and accommodate the applicable treatment after March 31, 2029.

This may require businesses to manage tax rates according to transaction dates and preserve historical tax information for sales made during different periods.

Returns, refunds and corrections relating to transactions completed before or during the temporary reduction may also require particular attention.

The exact transitional treatment of such transactions should be assessed against the final legislation and any subsequent NTA guidance.

Retailers should therefore avoid assuming that all transaction corrections or refunds would automatically use the rate applicable on the date they are processed.

Impact on affected businesses

The proposal is particularly relevant for supermarkets, grocery retailers, convenience stores, food distributors, e-commerce food retailers and businesses handling imported food products.

POS manufacturers, retail technology providers and accounting software developers may also be affected because the proposed rate would need to be supported across relevant transaction and reporting processes.

Businesses operating across multiple retail locations would need to ensure consistent tax treatment and system configuration.

However, no mandatory POS software change currently arises solely from the September 15 proposal.

The immediate business consequence is the need to monitor the legislative process and assess potential implementation requirements without prematurely changing existing tax calculations.

What should businesses do?

Retailers and POS providers should monitor the progress of the proposed legislation and any additional technical guidance issued by the NTA.

Businesses selling qualifying food and beverages should review which products and transaction types could fall within the proposed reduced rate.

POS and ERP providers should assess whether their systems can support a temporary additional tax rate, including any necessary changes to receipts, invoices, transaction records and accounting interfaces.

Companies should also consider how the proposed implementation and expiry dates could affect returns and corrections involving earlier transactions.

Until the legislation is enacted, the existing 8% reduced consumption tax rate remains applicable. Businesses should not implement the proposed 1% rate in live transactions based solely on the published outline.

From a retail compliance perspective, the proposal deserves attention because it would introduce a temporary tax rate that differs substantially from Japan's existing reduced rate.

The main operational challenge would be managing multiple tax rates while ensuring that product classification, receipt issuance and invoice data remain consistent.

The temporary nature of the measure also makes it relevant for POS development planning. Businesses may need to accommodate both the introduction and subsequent expiry of the proposed 1% rate.

Nevertheless, preparation should remain proportionate to the measure's current legislative status.

The source for this article is the Tax Authority’s and Ministry of Finance’s published explanatory materials on the proposed temporary reduction. Source

Ivana Picajkić, Medior Legal Consultant at Fiscal Solutions

Linkedin profile