Japan to Raise Taxes in 2026 to Boost Defense Spending

After delaying for a year, Japan's government intends to increase the nation's major taxes beginning in April 2026 to finance increased defense spending, according to sources. The proposal calls for the elimination of the country's business tax and tobacco tax as early as April 2026, in line with previous Prime Minister Fumio Kishida's pledge to increase taxes in order to double defense spending to 2% of GDP by 202

One percent surtax would be applied to the income tax increase, and four percent would be applied to the corporate tax increase. Three increases in the tobacco tax will be made until April 2029, starting with a boost for heated tobacco to match the cost for cigarettes.

To mitigate income tax obligations, the disaster reconstruction income surtax rate will be lowered by 1%. Beginning in April 2027, the government projects that the tax increases will increase revenue by ¥1 trillion (US$6.56 billion).

Both the ruling coalition and a significant opposition group, the Democratic group for the People (DPP), whose support is essential to the government's ability to maintain power, would have to approve the plan. The coalition administration decided in 2022 to raise taxes in order to boost the defense budget, but lawmakers' strong opposition has caused the action to be delayed.