Photo/Illutration Yoichi Miyazawa, chairman of the ruling Liberal Democratic Party's Research Commission on the Tax System, speaks at a meeting on Dec. 15. (Koichi Ueda)

Under a tight deadline to compile a tax hike proposal to help pay for Japan’s defense buildup, a research commission left out a key part in the plan: when the tax rates will rise.

Prime Minister Fumio Kishida had given the ruling coalition’s Research Commission on the Tax System only a week to come up with the plan, which was approved on Dec. 15.

The proposal was included in the tax reform plan for next year that was announced on Dec. 16 by the commission.

While taxable items and suggested rate increases were included, the commission’s proposal said the implementation date would be “an appropriate period in 2024 or thereafter.”

That ambiguous wording reflects the strong resistance put up by lawmakers of the ruling Liberal Democratic Party who felt the Kishida administration was trying to railroad a tax hike through the party without considering the political fallout, especially with unified local elections set for next spring.

Kishida on Dec. 8 announced that Japan would need 1 trillion yen ($7.3 billion) more in tax revenue by fiscal 2027 to fund the defense spending increase of 17 trillion yen over the five-year period from fiscal 2023 through fiscal 2027.

Although the research commission agreed that personal income, corporate and cigarette taxes would be raised, it put off until next year a decision on when those increases would kick in.

By postponing a decision on the timing of the tax hikes, the commission has shown that it may still be unable to come up with a schedule next year, which could delay the start of the higher levies.

The government, in turn, could end up planning specific programs and projects to enhance the nation’s defense capabilities amid uncertainties over how the measures will be paid for.

Under the research commission’s plan, a 1-percent tax will be tacked on to the personal income tax to pay for defense, while the special tax for reconstruction from the 2011 natural disasters will be cut from 2.1 percent to 1.1 percent.

However, the period for the reconstruction tax will be extended beyond the original deadline of fiscal 2037.

The corporate tax rate will be raised by between 4 and 4.5 percent, but a planned tax exemption will mean that almost all small businesses would not see higher tax bills, according to the proposal.

The cigarette tax will be gradually raised for a total hike of 3 yen per cigarette.

For fiscal 2027, the government and ruling coalition are seeking to secure between 700 billion yen and 800 billion yen in corporate taxes and about 200 billion yen each in cigarette and personal income taxes.

But with no specific start for the tax hikes, it is unclear if those figures can be reached.

(This article was written by Ryuhei Tsutsui and Shinichi Fujiwara.)

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