Corporate, Tobacco Tax Hikes Begin as Japan Boosts Defense

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Tax increases tied to Japan's defense buildup began in fiscal 2026, following the government's 2024 decision to raise three taxes to help fund stronger defense capabilities. Higher corporate and tobacco taxes took effect in April, with an income-tax increase expected in January 2027.

The government aims to raise just over ¥1 trillion JPY ($6.3 billion USD) through the three tax hikes. Ministry of Finance (MOF) estimates say the package will generate about ¥1.33 trillion ($8.3 billion), enough to meet that target.

The corporate tax increase applies to business years beginning on or after April 1, 2026. Under the new system, companies will pay a 4% surtax on the portion of their corporate tax liability that exceeds ¥5 million ($31,000). Firms with corporate tax bills of ¥5 million or less will be exempt, a measure intended to shield smaller businesses.

Heated Tobacco First, Income Tax Next

Tobacco taxes rose first on heated tobacco products (HTPs), with the increase introduced in two stages in April and October to bring the tax rate into line with that on regular cigarettes. Starting in April 2027, the tax will increase by ¥0.5 per stick each year for three years.

*Foreign researchers participating in a symposium on smoking in Japan, held by the Institute for New Era Strategy Institute. November 7, Minato, Tokyo. (©Sankei)*

In response, Philip Morris Japan, which sells the HTP IQOS, and Japan Tobacco, maker of the Ploom series, raised prices by ¥20 to ¥50 ($0.13 to $0.31) per pack on April 1. British American Tobacco Japan, which markets the glo line, left prices unchanged.

The income tax increase is set to take effect in January 2027, with the government planning a 1% surtax on income tax liabilities. At the same time, it will cut the Special Reconstruction Income Tax, introduced to fund recovery from the 2011 Great East Japan Earthquake, by 1%. As a result, taxpayers' burden will not rise immediately. Over time, though, the burden will increase as the tax period is extended.

The global security environment continues to worsen, with US-Israeli strikes on Iran and rising US-China tensions. If Japan is forced to secure additional defense funding, debate over the added burden will almost certainly resurface.