According to The Japan Times. Japan will raise taxes on tobacco products and corporate income starting April 1, serving as a partial funding source for a five-year defense spending expansion plan totaling 43 trillion yen. The tobacco tax hike will be implemented in two stages: the first taking effect on April 1, and the second scheduled for October.
Key Points at a Glance
- Japan will raise taxes on tobacco products and corporate income starting April 1.
- The second round of tobacco tax hikes is scheduled for October, while a hike in individual income tax is slated for implementation in January of next year.
- The Japanese government projects that these three tax-raising measures will generate 1.3 trillion yen (approximately $8.15 billion) in annual fiscal revenue by fiscal year 2027.
- The associated revenue will be used to support a five-year defense spending expansion plan spanning from 2023 onward totaling 43 trillion yen (approximately $269.58 billion).
- Japan’s Ministry of Finance estimates that the tobacco tax hike will generate 44 billion yen (approximately $276 million) in tax revenue in fiscal year 2026, and 116 billion yen (approximately $727 million) in fiscal year 2027, with annual revenue subsequently rising to 212 billion yen (approximately $1.33 billion).
Japan Begins New Tax Measures to Fund Defense Expansion
On March 27, 2026, The Japan Times reported that Japan will raise taxes on tobacco products and corporate income starting April 1; these represent the first in a series of tax-raising measures being implemented to help fund an expanded defense budget.
Second Round of Tobacco Tax Hikes Scheduled
The second round of tobacco tax hikes is scheduled for implementation in October, while an increase in individual income tax is slated for January 2027.
Government Projects Significant Revenue Growth
The Japanese government projects that these three tax-raising measures will generate 1.3 trillion yen (approximately $8.15 billion) in annual fiscal revenue by fiscal year 2027. These funds will be utilized to support a five-year defense spending expansion plan, commencing in 2023, totaling 43 trillion yen (approximately $269.585 billion).
Tax Increases to Impact Cigarettes and Heated Tobacco Products
Tax rates for both cigarettes and heated tobacco products are slated for an increase.
Previously, tax rates for heated tobacco products were typically significantly lower than those for cigarettes; however, following this adjustment, the tax differential between the two categories will narrow further.
Tobacco Companies Announce Price Increases
Philip Morris Japan announced last month that, effective April 1, it would raise the price of 50 heated tobacco products by 40 to 50 yen (approximately $0.25 to $0.31) per pack.
Japan Tobacco, meanwhile, will raise the prices of 37 products by 20 to 30 yen (approximately $0.13 to $0.19), starting in April.
Neither company has yet indicated how it intends to respond to the further tax increases scheduled for October.
Ministry of Finance Revenue Projections
Last December, Japan’s Ministry of Finance projected that the tobacco tax hike would generate 44 billion yen (approximately $276 million) in tax revenue during fiscal year 2026, and 116 billion yen (approximately $727 million) in fiscal year 2027. Following a further increase in tax rates for cigarettes and other tobacco products in April 2027, annual revenue is expected to rise to 212 billion yen (approximately $1.329 billion).
