Japan weighs extra taxes for defense spending as early as April 2026

The government is considering increasing taxation as early as April 2026 to help cover its planned boost in defense spending, sources close to the matter said Wednesday.

Prime Minister Shigeru Ishiba's government has already decided to raise revenue from corporate, income and tobacco taxes to help fund its plan to nearly double the nation's defense budget to 2 percent of gross domestic product.

But the government has yet to finalize a timeline for the plan, having only said the additional taxation will come at an appropriate time in fiscal 2024 or later.

It is looking to begin a scheme to impose additional corporate tax and raise the tobacco tax in stages, both starting from April 2026, while also considering introducing a new tax item linked to income, starting January 2027, the sources said.

Under the government's goal of doubling Japan's defense budget to 2 percent or more of GDP over the five years through fiscal 2027, it has decided to allocate 43 trillion yen ($284 billion) in defense-related spending during the period.

It aims to boost its annual tax revenue by 1 trillion yen through the tax plans to cover the heftier defense budget.

The ruling Liberal Democratic Party and its junior coalition partner, the Komeito party, plan to stipulate when the additional taxation will be implemented in their tax reform plans for fiscal 2025.

As part of measures to ease inflation pain, the LDP and Komeito agreed with the Democratic Party for the People to raise the tax-free income threshold from the current 1.03 million yen starting from next year. The three parties will aim to eventually lift the ceiling to 1.78 million yen as demanded by the small opposition party.

The plan is also expected to encourage part-time employees to work longer hours, helping address labor shortages in the retail and other sectors.

The ruling coalition needs the opposition's support to pass budgets and bills in parliament after losing its majority in the House of Representatives in the general election late October.

Separately, the ruling and opposition parties agreed in principle on a draft legal revision requiring lawmakers to disclose the use of public funds allocated for research and other activities and return what is left to state coffers.

Each lawmaker receives 1 million yen a month, and the envisioned revision is part of political reforms to restore voter trust hurt by a slush fund scandal involving the LDP.