Japan weighs raising corporate tax to fund rising defense spending

The Japanese government is considering a plan to increase corporate tax to fund a boost in the country's defense spending, Japan Today reported, citing sources familiar with the matter.

The option is being raised as Japan works to revise three key security policy documents by year-end, which would likely result in defense outlays of more than 10 trillion yen (roughly $63 billion) annually, Japan Today reported.

The next five-year plan, covering fiscal 2027 through 2031, will focus on large-scale drone procurement and securing ammunition and missiles in preparation for a prolonged conflict, according to Japan Today.

A rough estimate based on the equipment and defense capabilities the Defense Ministry considers necessary suggests that the spending could swell to 70 trillion to 80 trillion yen, Japan Today reported, citing a senior government official.

The Japanese government will also reportedly consider spending reforms, but it remains unclear whether it can generate enough revenue to cover the defense costs.

However, the business community may resist a corporate tax increase out of concern that it could hamper wage hikes and undermine Japan's international competitiveness, complicating discussions over how to secure the necessary funding for higher defense spending, according to Japan Today.

Under Japan's current three national security documents, defense spending for fiscal years 2023 through 2027 is projected to total approximately 43 trillion yen. The Japanese government had initially planned to raise defense spending to 2% of the gross domestic product by fiscal 2027. However, after Sanae Takaichi became prime minister, the government accelerated the buildup and reached the target ahead of schedule in fiscal 2025.