Raise Taxes to Buy Drones? Japan Weighs Corporate Tax Hike as Defense Spending Soars

Pushing to increase defense spending to as much as 80 trillion yen over five years starting in 2027
Strong earnings at major AI and semiconductor companies draw attention
Coordinating to exclude 3.5%-of-GDP target

The Japanese government is considering raising corporate taxes to secure funding for increased defense spending, Sankei Shimbun reported on October 18.

The government plans to determine the scale of defense spending for the five years beginning in 2027 through three key security documents it is seeking to revise by the end of this year. The Defense Buildup Program, drawn up in 2022, set total defense spending at 43 trillion yen (approximately 363 trillion won) over five years. For the next plan, however, a proposal to increase that figure to as much as 80 trillion yen (approximately 675 trillion won) is under discussion. Key factors behind the proposal include the large-scale acquisition of unmanned aircraft and expanded stockpiles of ammunition and missiles.

When it drew up its security documents in 2022, the Japanese government secured more than 1 trillion yen (approximately 8.4 trillion won) by raising corporate, income and tobacco taxes. This time, too, there is speculation that the government could pursue a corporate tax increase, citing strong earnings at major companies in the artificial intelligence (AI) and semiconductor industries. However, the business community has also warned that higher taxes could weaken companies' international competitiveness and limit their capacity to raise wages.

Japanese Prime Minister Sanae Takaichi (right) attends a meeting with senior Self-Defense Forces commanders at the Ministry of Defense in Tokyo on September 2, alongside Defense Minister Shinjiro Koizumi (left). Yonhap News.

Japanese Prime Minister Sanae Takaichi said at the House of Representatives Budget Committee on October 13 that she would "clearly present the specifics in the upcoming budget formulation process" regarding funding for defense spending. Finance Minister Satsuki Katayama also said, "We will consider the matter with due regard for fiscal sustainability."

The Japanese government is reportedly coordinating plans not to specify a defense spending target of 3.5% of gross domestic product (GDP). The reasoning is that applying such a target could push annual defense spending above 20 trillion yen (approximately 169 trillion won), increasing the fiscal burden.

In addition to the Defense Ministry's budget, the government is also considering broadening the scope of defense-related spending by including budgets for economic security, AI and space in a category provisionally called "comprehensive security-related expenditures," Asahi Shimbun reported.

This content was produced with the assistance of AI translation services.