Government Adjusts Taxes to Support Defense Spending Increase

Dec.12.2022
Government Adjusts Taxes to Support Defense Spending Increase
Japan adjusts taxes to support defense spending through a special tax on income and tobacco, while considering an additional tax for corporations.

The government and ruling party have initiated adjustments to provide financial support for increased national defense spending through the allocation of special income taxes on revitalization and tobacco, separate from corporate taxes. The goal is to gradually implement these changes starting in 2024. As for corporate taxes, consideration is being given to introducing an "additional tax" system that would increase tax revenues without changing existing tax rates, in order to avoid burdening small and medium-sized enterprises.


The Liberal Democratic Party's Tax Study Group, chaired by Yoichi Miyazawa, held an informal meeting in Tokyo on the 11th and confirmed several policies that will be reflected in the Tax Reform Outline for 2023, which will be compiled by the ruling party this week. Several government and ruling party officials have confirmed this.


Prime Minister Kishida has announced his intention to increase taxes in order to provide funding for strengthening Japan's defense capability to a level of at least 1 trillion yen per year. It is estimated that corporate taxes will ensure 700-800 billion yen through the use of an "additional tax" method, which will involve a special measure to increase a certain proportion without changing the original tax rate.


We are considering a method where a certain amount will be deducted from the annual corporate tax paid by small and medium-sized enterprises, followed by an additional tax, for their consideration. We are also looking at increasing the temporary special corporate tax, which was implemented during the 1991 Gulf War, where the corporate tax amount was reduced by 3 million yen and multiplied by 2.5%.


The revival special income tax and tobacco tax are expected to generate approximately 200 billion yen in revenue.


The Reconstruction Special Income Tax is an additional 2.1% tax imposed on income tax amounts used for the East Japan Earthquake reconstruction budget, with tax revenue in the 2021 fiscal year estimated at about 440 billion yen. By extending the taxation period to 2037, we will ensure the planned raising of approximately 75 trillion yen in the 25 years after the disaster, as well as maintaining fiscal resources for rebuilding purposes. As for tobacco tax, the focus will be on increasing taxes for cigarettes and heated tobacco products.


Regarding financial resources, the Prime Minister has instructed the Liberal Democratic Party and the New Komeito Party to consider tax projects and timing. However, some individuals within the government and ruling party have expressed confusion about the Prime Minister's true intentions in making a statement at this time to cool down the atmosphere of wage increases in companies. The Economic and Fiscal Policy Minister acknowledges that this difficulty was expected.


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