TOKYO (Realist English). Japan’s ruling Liberal Democratic Party (LDP), led by Prime Minister Sanae Takaichi, is weighing an increase to the national income tax beginning in January 2027 as part of efforts to fund a sweeping expansion of the country’s defense budget, according to sources familiar with the discussions.
The measure under consideration would introduce a special income tax dedicated to defense spending, potentially generating more than ¥200 billion in annual revenue. The proposal comes as Japan moves to implement its earlier decision — taken before Takaichi took office in October — to allocate ¥43 trillion for defense over the five years through March 2028 in response to rising security threats in the region.
Balancing security needs and inflation pressures
Japan plans to finance the buildup partly through increases in corporate, tobacco, and income taxes. However, the exact timing of an income tax hike remains contentious, given persistent inflation that continues to strain household budgets.
As part of the proposal, the government would scale back the special tax introduced after the 2011 earthquake, tsunami and nuclear disaster. While this adjustment is intended to soften the impact on taxpayers, the disaster-related levy would be extended to maintain overall revenue levels — meaning the defense-specific surcharge would still represent an additional long-term burden for households.
Before entering a coalition with the LDP, the Japan Innovation Party had opposed tax hikes linked to defense spending, underscoring lingering political sensitivity around the issue.
Corporate and tobacco tax hikes already scheduled
Japan will move ahead with previously announced tax increases from April next year. Corporate taxes will rise through a new 4% surcharge, while higher tobacco taxes will begin with increased levies on vaping products.
Combined, the changes across the three tax categories are expected to secure slightly over ¥1 trillion per year by the end of March 2028 — a key component of Tokyo’s strategy to strengthen its defense capabilities while maintaining fiscal stability.
