Japan mulls extension of reconstruction tax duration

The Yomiuri Shimbun
A meeting of the Liberal Democratic Party’s Research Commission on the Tax System at the party’s headquarters in Tokyo on Tuesday

The government and the ruling parties are planning to extend the duration of a special income tax for reconstruction by 14 years as part of efforts to secure funds for an increased defense budget, according to sources.

The tax was initially scheduled to continue until 2037.

The government is also considering introducing a corporate income surtax of about 4.5% to 5%, the sources said.

The special income tax for reconstruction, which is set at 2.1% and is in addition to the standard income tax, was introduced to secure funds for reconstruction from the 2011 Great East Japan Earthquake.

The government plans to use about ¥200 billion a year from reconstruction tax revenue to finance the defense budget, and maintain the total reconstruction budget by extending the taxation period.

The government wants to allocate about half of the tax revenue to defense spending from fiscal 2024. By extending the duration of the tax by 14 years, the government believes the shortfall in the reconstruction budget can be made up.

The corporate tax rate will be maintained but a surtax will be introduced. A surtax rate of about 4.5% to 5% is expected to raise ¥700 billion to ¥800 billion per year.

The ruling parties are also calling for an increase in tobacco tax for heated tobacco products, for which the tax rate is lower than that of conventional cigarettes.

Measures to secure funds from sources other than tax hikes include a plan to earmark about ¥100 billion from the reserves of the National Hospital Organization and the Japan Community Health care Organization — independent administrative institutions under the jurisdiction of the Health, Labor, and Welfare Ministry.

The organizations logged reserves totalling ¥150 billion in fiscal 2021.

Both institutions saw strong earnings due to the government’s hospital bed subsidies amid the COVID-19 pandemic.

The government plans to ask them to return the reserves to the state coffers by the end of fiscal 2023.