Tax Reform Regarding the Reduction of the Consumption Tax Rate on Food and Beverages

On September 15, 2026, a proposed revision to the consumption tax system was announced in response to recent rapid inflation. The core of this proposal is a temporary reduction of the consumption tax rate on food and beverages to 1% (combined national and local taxes) for a two-year period from April 1, 2027, to March 31, 2029. Additionally, various related special provisions will be established. This document outlines these proposed revisions. 

Please note that these proposed revisions are not yet finalized; the bill must be submitted to, and passed by, the Diet.

Applicable Items and Tax Rates

The 1% consumption tax rate will apply to the sale of food and beverages, as well as food and beverages withdrawn from bonded areas. The scope of these items is identical to the scope of food and beverages subject to the 8% tax rate prior to March 31, 2027 (i.e. food and drink sold at restaurants and similar establishments equipped with dining facilities, and alcoholic beverages are not within the scope). As a result, the applicable consumption tax rates by item will be as shown in the table below:

Transitional Treatment due to Tax Rate Change

For sales made on or after April 1, 2027, when the tax rate is reduced, the previous 8% tax rate will continue to apply to those based on certain continuous supply contracts or mail-order sales. However, this exception does not apply if it can be confirmed that the contract is premised on the 1% tax rate, or if the contract has been amended.

Special Provision for Changing from a Tax-Exempt to a Taxable Enterprise

If the tax amount on purchases (input tax) exceeds the tax amount on sales (output tax), a taxpayer can receive a consumption tax refund by filing a tax return under the general taxation system. A special provision will be established whereby if a tax-exempt enterprise engaged in the sale of food and beverages submits a "Report on the Selection of 
Taxable Enterprise Status for Consumption Tax" during the taxable period that includes April 1, 2027, it will become a taxable enterprise starting from that taxable period.

Special Provision for Changing from Simplified Taxation to General Taxation

If an enterprise currently using the simplified taxation system and engaged in the sale of food and beverages submits a "Report on the Non-Selection of Simplified Taxation System for Consumption Tax" during the taxable period that includes April 1, 2027, it may file its return using the general taxation system starting from that taxable period. The standard requirement mandating the continuous application of the simplified taxation system for two years will not apply to this specific period.

Special Provision for Calculation Methods under the Simplified Taxation System

Under the simplified taxation system, a deemed purchase rate (depending on the type of business) is applied to the tax on sales to get the creditable input tax, rather than deducting the actual input tax incurred on purchases. A special provision will be introduced for an enterprise engaged in the sale of food and beverages. Regardless of the business classification, the input tax amount for the sale of food and beverages (subject to the 1% rate) shall be recorded as equal to the output tax amount for those sales. For other output taxes, the creditable input tax is calculated by summing the amounts obtained by multiplying the sales tax by the deemed purchase rate.

Calculation Example: Supermarket (Retail)

Special Provision for the Interim Tax Return System

For interim tax returns starting on or after April 1, 2027, an enterprise engaged in the sale of food and beverages will be able to calculate the interim tax amount assuming that the 1% tax rate was applied to the sales and purchases of food and beverages during the immediately preceding taxable period. A similar special provision will be established at the end of the tax reduction period, allowing calculations assuming the 8% rate was applied to the preceding taxable period.

Special Provision for the Obligation to Display Total Prices of Food and Beverages

In cases where it is difficult to immediately comply with total price display requirements, such as the need to relabel price tags overnight, a display of total prices using either the 8% or 1% rate (including a mix of old and new rates) will be permitted between February 1 and May 31, 2027, provided that it does not mislead consumers regarding the actual amount to be paid. A similar special provision will be implemented at the end of the consumption tax reduction period (from February 1 to May 31, 2029). For example, for a product previously sold for 108 JPY (tax-included), the price indicated on the price tag could remain unchanged, provided an additional notice such as the following is displayed:

"The prices of the products on this shelf are displayed inclusive of tax based on the 8% tax rate. Transactions at the cash register will be processed using the 1% tax rate."

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