Can the Food Consumption Tax be eliminated?

Takaichi Faces the Food Consumption Tax Problem

By Takuya Nishimura, Senior Fellow, Asia Policy Point
Former editorial writer for the Hokkaido Shimbun
You can find his blog, J Update here.
May 4, 2026
 
Prime Minister Sanae Takaichi is having difficulty living up to her campaign commitment to eliminate the consumption tax on food for two years. Takaichi plans to introduce a tax cut bill by the end of fiscal year 2026, that is, by the end of March 2027, but the sales registration system cannot be adjusted to reflect the elimination within that timeframe. The leading parties are discussing a one percent tax rate, which the system can manage, but which is different from what Takaichi committed to in February’s Lower House election.
 
When Takaichi decided this past January to have a Lower House snap election in February to strengthen her political base in the Diet, the Liberal Democratic Party (LDP) included this policy in its campaign platform. The LDP said that “we accelerate considering the exclusion of food from the consumption tax for two years.” It was a countermeasure to the Centrist Reform Alliance (CRA) proposal to permanently eliminate the consumption tax on food.
 
After the party achieved a sweeping victory in the election, Takaichi explained that she would accelerate discussion on a zero-percent consumption tax on food for two years as a temporary measure until a refundable tax credit bill was introduced. The food consumption tax cut and the refundable tax credit are intended to support low-income families.
 
To implement these policies, Takaichi launched the National Conference on Social Security in late February, which includes members of some opposition parties. During a series of meetings, the Conference realized that elimination of the consumption tax has a technical problem. Major software engineering companies testified in April before the Conference that it would take nine to twelve months to adjust retailers’ sales registration systems to include elimination of the consumption tax on food. The system could not readily include zero-percent taxation. This timeframe would not meet Takaichi’s deadline.
 
The engineers assured the Conference, however, that they could modify the system within three months if the adjustment were to one percent rather than zero percent. Reducing tax rate from the current eight percent to one percent eases the tax rate by a substantial amount. The chairman of the conference and the chief of the LDP Research Commission on Tax System, Itsunori Onodera, reportedly said “That’s a good idea.” So, the one percent consumption tax on food suddenly appeared on the table.
 
The size of the cut notwithstanding, one percent, is totally different to the public from zero percent. Citizens have already taken account of a zero percent tax. Indeed, they believe it to be one of Takaichi’s core promises to the voters in the February Lower House election. If she fails to implement it, the Takaichi Cabinet’s approval rating will fall; indeed, this consequence is already showing up in current polls.
 
The consumption tax cut has other problems besides the registration system. Restaurants will be adversely affected because consumers will prefer buying untaxed food in supermarkets to more expensive restaurant dinners. Local governments will lose revenue since the national government now sends 40 percent of the consumption tax proceeds to them. 
 
Despite these hurdles, Takaichi still plans on zero percent. She envisages a schedule in which the national Conference concludes its work in early summer, the cabinet submits tax elimination bills in the Diet’s fall session, and the Diet passes the bills by the end of 2026. The two-year hiatus of the food tax rate would take effect at the end of the fiscal year next March.
 
Takaichi’s ideas on the consumption tax cut have occasionally changed. In May 2005, two months before the Upper House election, Takaichi told her disappointment on negative stance on consumption tax cut by then prime minister Shigeru Ishiba. She proposed no consumption tax on foods. Then, when she ran for the LDP presidency last September, she became reluctant to push for the elimination. Her reluctance was based on her view that, given current price inflation, elimination of the tax would not be an efficient way to fight inflation. Moreover, she already understood the considerable length of time that would be required to change the retailers’ sales registration system. Observers believe that she opposed a total elimination to garner the support of an LDP heavyweight, Taro Aso, who also opposed a tax cut. She at least acknowledged the practical difficulties of a consumption tax cut at this time.
 
But Takaichi then confirmed her original position in January 2026 when she called the dissolution of the Lower House. She began to say that a consumption tax cut had been her long-cherished wish. But the remarkable fact is that Takaichi has never explicitly said that she has decided to introduce zero percent consumption tax on food. She has only said that she would accelerate consideration of a full if temporary elimination.
 
The consumption tax issue has destroyed some previous administrations. The LDP lost in the 1979 Lower House election when prime minister Masayoshi Ohira considered introducing a major indirect tax, including a food consumption tax. The defeat ignited a sharp division in the LDP, and Ohira died of fatigue the following year.
 
It was former prime minister Noboru Takeshita who introduced a consumption tax for the first time at three percent. But it became one of the reasons that the approval rating for him fell into the single digits. A later prime minister who decided the consumption tax rate from five percent to ten was not Shinzo Abe but Yoshihiko Noda in 2012. Noda led a three-party consensus of the Democratic Party of Japan (DPJ), the LDP, and Komeito to push for an integrated reform of social security and taxes in 2012, but his DPJ lost its government in the Lower House election later that year.
 
The consumption tax has been introduced as a fiscal resource to support senior citizens as Japan becomes an increasingly aging society. However, the Japanese people have been complaining about the tax on their daily consumption. The function of the tax and the popular desire to eliminate it are incompatible. Like other prime ministers, Takaichi is now facing this political tension.