A tax panel of Japan's ruling Liberal Democratic Party on Thursday agreed to raise the country's coroporate, income and tobacco taxes to pay for a doubling in the defence budget over the next five years as it confronts rising regional tensions.
The plan will be written into an annual tax-code revision for the next fiscal year from April, with the aim of gaining formal government approval on Friday, Yoichi Miyazawa, chief of the LDP's tax panel, told reporters.
"Participants agreed to leave the defence tax plan entirely to me," Miyazawa told reporters after the meeting.
The tax hikes will kick in "at an appropriate time" in fiscal year 2024 or thereafter, he added.
Prime Minister Fumio Kishida has said taxes would be raised to fund higher defence spending, which is set to rise to 2% of gross domestic product by 2027 from 1% now, but the plan became bogged down for days in wrangling among lawmakers who objected to near-term tax increases that are bound to be unpopular.
The delays highlighted the challenges for Kishida as his popularity dwindles while he juggles the conflicting priorities of restoring Japan's tattered public finances and addressing geopolitical risks from an assertive China and from unpredictable North Korea and Russia.
Japan is struggling to secure funding sources for planned defence spending of 43 trillion yen ($315 billion) over the next five years, which could further complicate its aim of balancing the budget - excluding new bond sales and debt servicing - by fiscal year 2025.
Among the three taxes targeted for increases, the special income tax was originally intended to help rebuild areas hit by the 2011 earthquake and tsunami in northeast Japan, which was unrelated to military spending.
Kishida has dismissed the possibility of issuing extra bonds to cover increased defence spending.
($1 = 136.6100 yen)
(Reporting by Tetsushi Kajimoto; Editing by Chang-Ran Kim and Edmund Klamann)
