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Japan begins tax increases to bankroll record US$8 billion military build-up

Japan on Wednesday raised tobacco and corporate taxes to finance a boost in defence spending, with income tax hike set to follow in 2027 as…

By Samantha Johnson / April 1, 2026
Japan on Wednesday raised tobacco and corporate taxes to finance a boost in defence spending, with income tax hike set to follow in 2027 as the government projects the tax increases will add some 1.3 trillion yen (US$8 billion) annually in revenue.

As the security environment surrounding Japan deteriorates and the government is set to further strengthen the country’s defence capabilities, the public is likely to face further tax burdens to finance the outlays, which have now ballooned to a record-high 9 trillion yen a year.

From Wednesday, the government added a surtax of 4 per cent after deducting 5 million yen from the corporate tax amount. The measure, estimated to raise tax revenues by 869 billion yen, will exclude small and midsize businesses with small incomes.

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For heated tobacco products, the government is implementing a two-stage tax hike starting on Wednesday and again from October, aligning them with the rate for conventional cigarettes, which is currently higher.

Smokers congregate at a designated smoking area in Tokyo. Photo: EPA-EFE
Smokers congregate at a designated smoking area in Tokyo. Photo: EPA-EFE

It will then raise the tax rate for both heated and conventional cigarettes from April 2027 in three stages, hiking it by 0.5 yen per stick. The increases are set to expand tax revenues by 212 billion yen.

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As for income tax, the government will charge an extra 1 per cent from January 2027 to secure 256 billion yen.

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