Economy Mitsubishi Research Institute: food tax cut could cost farmers ¥300bn

A reduction in the consumption tax on food and beverages could cut the annual income of roughly 800,000 small and medium-sized farms by more than ¥300 billion, according to an estimate released Saturday by the Mitsubishi Research Institute.

Many of these farms are partially or fully exempt from the current 8% consumption tax, which is included in their product prices. As a result, lowering the rate to 1% would reduce income for many producers and could accelerate the ongoing decline in farm numbers. The impact would vary by farm size, but the think tank estimated the average annual loss at around ¥400,000 per farm.

A reduction in the tax rate on food and beverages would reduce the income of farms because they would continue paying the current consumption tax on fertilizers and agricultural machinery, while the amount of tax included in the prices of the products they sell would decline. Among sectors, the share of small and medium-sized producers is particularly high in agriculture, making the sector more vulnerable to the tax cut's impact.

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According to the estimate, around 700,000 of Japan's roughly 820,000 farms are fully exempt from consumption tax, while another 85,000 are partially exempt. As a result, a reduction in the tax rate would directly affect the income of many agricultural producers.