Japan plans to raise key taxes in 2026 to fund defence budget expansion
Members of the Japan Self-Defense Forces (JSDF) march in formation at Ground Self-Defense Force Camp Asaka, on Nov 9, 2024 in Asaka, Japan. (Photo: David Mareuil/Pool via REUTERS)
TOKYO: Japan's government plans to raise the country's key taxes starting in April 2026 to fund more defence spending after a one-year delay, according to a document seen by Reuters on Thursday (Dec 12).
The plan, following through on former Prime Minister Fumio Kishida's commitment to raise taxes to double defence spending to 2 per cent of gross domestic product by 2027, calls for lifting the country's corporate tax and tobacco tax starting as early as April 2026.
The government also plans to increase income tax in January 2027, the document showed.
The corporate tax hike would take the form of a surtax of 4 per cent, and the income tax rise would be a surtax of 1 per cent. The tobacco tax will be first raised for heated tobacco to match the rate for cigarettes, to be followed by three hikes for the overall rate through April 2029.
Income tax burdens will be offset by a reduction in the disaster reconstruction income surtax rate by 1 per cent.
The government estimates the tax increases will boost revenue by ¥1 trillion (US$6.56 billion) in the year starting in April 2027.
The plan would need approval from the ruling coalition, as well as from the Democratic Party for the People (DPP), a key opposition party whose cooperation is crucial for the coalition to stay in power.
The coalition government agreed in 2022 to raise tax rates to increase the defence budget, but stiff opposition among lawmakers has delayed implementation of the move.
