Japan is gearing up to increase taxes as early as April 2026 to finance its ambitious plan to double its defence budget to 2% of GDP. This move comes as the nation seeks to bolster its military capabilities amid growing regional tensions, as reported by Kyodo News. 

The government intends to raise revenue through a combination of corporate, income, and tobacco taxes. 

While the specific details of the tax hikes are still being finalised, the initial plan involves gradually increasing corporate and tobacco taxes starting from April 2026. Additionally, a new income-linked tax is being considered for implementation in January 2027.

The increased defence spending, estimated at JPY43 trillion ($280bn) over the next five years, aims to enhance Japan's military capabilities and strengthen its alliance with the United States. However, this significant expenditure necessitates additional revenue to avoid ballooning the national debt.

To mitigate the impact of rising taxes on households, the government is also considering raising the tax-free income threshold. This measure aims to provide some relief to taxpayers, particularly low-income earners.

The ruling Liberal Democratic Party (LDP) and its coalition partner, Komeito, are expected to finalise the details of the tax reform plan in the coming months. The support of the opposition Democratic Party for the People will be crucial in passing the necessary legislation.

With Chinese chest-beating so blatant in recent months, particularly in the Taiwan Strait region, however, this is not expected to be a major problem.

The proposed tax hikes and defence spending increase underscore Japan's evolving security posture and its commitment to strengthening its military capabilities. As the geopolitical landscape shifts in East Asia, Japan is taking steps to ensure its national security and protect its own and the interests of its allies in the region.