Photo/Illutration Yoichi Miyazawa, chairman of the LDP’s Research Commission on the Tax System, speaks to reporters after the commission’s meeting on July 13. (Naoki Matsuyama)

Proposed tax increases to finance a massive defense buildup in fiscal 2024 will likely have to be put off, according to the head of the ruling Liberal Democratic Party’s tax research commission.

The government said at the end of last year that the tax hikes will kick in “at an appropriate time” in 2024 or later.

But now senior officials of the LDP’s Research Commission on the Tax System say it will be difficult to submit the relevant bill to the extraordinary Diet session this autumn to decide when to set a date for raising taxes.

They reached this conclusion at a July 13 closed-door meeting held at the party headquarters in Tokyo.

Afterward, commission chairman Yoichi Miyazawa told reporters, “It would be possible to raise the corporate tax rate from April 2024 if (a related bill) is passed during the extraordinary Diet session, but we all agreed that the schedule is quite tight.”

This strongly suggests the tax hikes will be pushed back until 2025 or later.

In December 2022, the government announced it needed to secure more than 1 trillion yen ($7.3 billion) in corporate, income and cigarette taxes in fiscal 2027 to cover part of the planned defense spending increase of 17 trillion yen over the five-year period from fiscal 2023 through fiscal 2027.

In its tax reform plan, the government said those increases would take effect at an “appropriate time in 2024 or later.”

A proposal within the ruling party to hold an extraordinary meeting of the commission on the tax system by this summer to decide on the timing of the tax hikes and submit a bill to revise related legislation to the extraordinary Diet session in autumn is now considered “very difficult,” Miyazawa said July 13.

In addition to 600 billion yen to 700 billion yen in corporate tax, the government is seeking to secure about 200 billion yen each from increases in income and cigarette taxes.

A senior official of the commission said “it is meaningless” to raise income and cigarette taxes separately from the corporate tax rate.

“Generally, we inform the public about a year in advance, so it would be difficult to raise taxes starting next year if the discussion is held at the end of this year,” another senior official explained.

The government had indicated its readiness to delay the start of the tax increases.

In the Basic Policies for Economic and Fiscal Management and Reform approved by the Cabinet in June, the government stated that “it will make a flexible decision based on the situation, so that it can do so at an appropriate time in 2025 or later.”

The tax revenue and budget surplus for fiscal 2022 released July 3 exceeded the government’s expectations, and there were growing calls within the LDP to postpone the tax increases.

(This article was written by Naoki Matsuyama and Shino Matsuyama.)

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