Photo/Illutration The Finance Ministry building in Tokyo’ Chiyoda Ward (Asahi Shimbun file photo)

Japan’s tax revenue for fiscal 2022 is expected to hit a record high for the third straight year with signs it could top 70 trillion yen ($500 billion) for the first time, government data shows.

The windfall is due to a recovery of business performance after the COVID-19 pandemic as well as a significant weakening of the yen and a sharp rise in prices due to the war in Ukraine.

The gains are most noticeable in corporate and consumption taxes.

As a result, overall tax revenue for the fiscal year is expected to surpass the government’s estimate of 68 trillion yen that it forecast at the end of last year.

However, it is unclear if the increase in tax revenue will lead to fiscal consolidation.

This is because of calls in the ruling Liberal Democratic Party for the higher tax revenue to be used to fund a massive increase in defense outlays as the government has suggested it will delay the start of a planned tax hike for the initiative until fiscal 2025 or later.

The fiscal year starts in April and ends the following March.

The government publishes tax revenue data every July for the previous fiscal year.

It does so after adding corporate tax to the total paid by companies whose fiscal year ends in March and the amount of consumption tax revenue that became apparent in May.

Over the past five years, the calculation of tax revenue by the government in May added eight trillion to 10 trillion yen to overall tax revenue.

The government’s calculation as of the end of April already showed that tax revenue in fiscal 2022 would reach 61 trillion yen.

So, if things follow the pattern of the past five years, tax revenue for fiscal 2022 will likely surpass 70 trillion yen.

RECORD NET PROFITS

Data from SMBC Nikko Securities Inc. shows that around 1,300 listed companies, excluding financial institutions, chalked up a record total net profit of 35.6 trillion yen in the fiscal year.

This triggered a sharp rise in revenue from the corporate tax. With prices of goods and services rising, revenue from the consumption tax increased as well.

Along with the price hikes, the recovery of individual consumption helped bolster revenue from the consumption tax.

Government calculations by the end of April showed that revenue from the consumption tax for fiscal 2022 was 1.2 trillion yen more than in fiscal 2021.

Takuya Hoshino from Dai-Ichi Life Research Institute Inc. estimates that overall tax revenue for fiscal 2022 will likely reach around 72 trillion yen.

“The impact from price hikes is obviously reflected in the increase in revenue from the consumption tax,” he said.

TIMELY NEWS

The development is welcome news for a special mission committee of the LDP that has been exploring how the government could fund the planned defense budget increase through ways other than tax hikes.

The committee has proposed that if economic growth or other factors bring more tax revenue, the increase should be used to fund the defense outlays.

The government initially said it would raise taxes to fund the increase at an “appropriate time in 2024 or onward.”

It has since hinted it might delay the timing.

However, the size of the government budget in fiscal 2022, including the supplementary budget, reached a whopping 139 trillion yen. Even if tax revenue exceeds 70 trillion yen, that will only cover half of the budget size.

That means that the government will continue to rely on issuing bonds to cover the deficit.

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