Photo/Illutration Prime Minister Fumio Kishida addresses a Dec. 10 news conference in Tokyo. (Pool)

Ruling coalition lawmakers seem to be either ignoring specific instructions given by Prime Minister Fumio Kishida or resorting to clever ploys to pay for a massive defense buildup.

Kishida pledged not to raise personal income taxes when he announced Dec. 8 that a 1-trillion yen ($7.3 billion) tax increase would be needed by fiscal 2027 to fund an additional 17 trillion yen in defense spending over the five-year period between fiscal 2023 and fiscal 2027.

Ruling coalition lawmakers in the Research Commission on the Tax System scurried to come up with taxes to tinker with and came up with ballpark figures of between 700 billion yen and 800 billion yen in increased corporate taxes, about 200 billion yen in higher taxes on electronic cigarettes and about 200 billion yen in higher personal income taxes.

But the increase in personal income taxes is being masked somewhat ingeniously.

Currently, an additional 2.1 percent is applied to personal income to come up with special tax revenues to pay for reconstruction of areas in northeastern Japan devastated by the magnitude-9.0 Great East Japan Earthquake in 2011 that produced towering tsunami.

The special tax was initially created for a 25-year period between fiscal 2013 and 2037 to generate about 7.5 trillion yen for reconstruction. One plan now being considered is to extend the period for the special tax, but reduce the rate from 2.1 percent during that time. Revenues from the reduced amount would be allocated for defense.

One proposal would extend the period for around 20 years, but cut the rate in half, meaning half of the tax revenues from the special tax would then go to defense.

Because the tax rate will be reduced, it could be argued that individual taxpayers would not end up with a higher tax bill. But that ignores the reality that taxpayers will be obliged to face an additional tax burden over a prolonged period.

When reports of the proposal emerged, lawmakers from the Tohoku region blasted it as placing priority on defense rather than paying attention to areas still trying to bounce back 11 years after the disasters.

“Switching the special tax for reconstruction to pay for defense is an act of betrayal directed at the public as well as residents of disaster-stricken areas,” fumed Jun Azumi, the Diet Affairs Committee chairman of the main opposition Constitutional Democratic Party of Japan who represents a district in Miyagi Prefecture.

The idea for using the special tax came up to placate the business sector, which will still be asked to shoulder more than half of the additional tax burden to pay for defense.

Corporate tax revenues in fiscal 2021 totaled around 13 trillion yen. If the corporate tax rate was increased by, say 6 percent, it would result in an additional 800 billion yen or so.

One proposal being considered by ruling coalition lawmakers is to include exemptions for small businesses.

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