Japan hikes tobacco, corporate taxes to finance defense spending hike

Japan on Wednesday raised tobacco and corporate taxes to finance a boost in the country's defense spending amid a "deteriorating" security environment in the region, local media reports said.

With the tax hike set to follow in 2027, the government projects to add some 1.3 trillion yen ($8 billion) annually in revenue, Tokyo-based Kyodo News reported.

Tokyo is set to further beef up the country's defense capabilities as the security environment surrounding Japan deteriorates.

The public is likely to face further tax burdens to finance the defense outlays, which have now ballooned to a record-high 9 trillion yen ($56.6 billion) a year.

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

The series of defense-related tax increases was decided in response to a new security strategy compiled in December 2022 that includes a plan to cover 1 trillion yen annually by hiking taxes.

Prime Minister Sanae Takaichi has been eager to raise defense and related spending, vowing to revise three security documents by the end of this year.

Under her government, Japan brought forward its goal of raising defense spending and related initiatives to 2% of gross domestic product by two years, to fiscal 2025.

Japan's annual defense budget had long been capped at around 1% of GDP before it drafted its five-year defense buildup plan.