TOKYO – Japan increased tobacco and corporate taxes to fund a rise in defense spending, with an income tax hike planned for 2027, estimating a boost of around 1.3 trillion yen ($8 billion) in yearly revenue.
Amid growing security challenges, Japan intends to strengthen its defense capabilities, leading to a surge in defense expenditures to a historic 9 trillion yen per year.
Starting this week, a 4 percent surtax, excluding small to midsize businesses with lower incomes, will be added to corporate taxes after a deduction of 5 million yen, aiming to generate 869 billion yen in additional tax revenue.
Furthermore, the government is implementing a phased tax increase for heated tobacco products, aligning their rates with traditional cigarettes. By April 2027, both types of cigarettes will see a tax rate rise of 0.5 yen per stick, projecting a revenue boost of 212 billion yen.
In terms of income tax, an extra 1 percent will be charged from January 2027 to secure 256 billion yen. However, this hike will be offset by a 1 percent reduction in a special income tax utilized for reconstruction efforts post the March 2011 disaster.
Despite these changes, the overall financial burden on the public is expected to rise as the special income tax for reconstruction is prolonged.
These tax adjustments are linked to a new security strategy unveiled in December 2022, aiming to generate 1 trillion yen annually through tax hikes. A significant 9 trillion yen was allocated for defense spending in fiscal 2026, part of a five-year 43-trillion-yen defense enhancement plan.
The government, under Takaichi’s leadership, accelerated plans to enhance defense spending to 2 percent of the GDP by 2025, two years ahead of schedule. Following the United States’ call in its national defense strategy document released in January, Japan may face pressure to further increase defense outlays, contradicting the historical cap of around 1 percent of GDP or approximately 5 trillion yen before the current defense plan was devised.
