The Liberal Democratic Party and its junior coalition partner, Komeito, have agreed to postpone a decision on when to raise income tax rates to secure funding for higher defense expenditures, Yoichi Miyazawa, chair of the LDP's tax panel, said Friday.

As for defense spending-linked hikes of corporate and tobacco taxes, the ruling parties are set to include a plan to start implementing them in April 2026 in their outline for the fiscal 2025 tax system reform.

The two parties' tax system research commissions initially aimed to raise corporate and tobacco taxes in April 2026 and income tax rates in January 2027, and had hoped to include both measures in the tax system reform package for fiscal 2025.

But calls from Komeito to reconsider the timing of the income tax hike emerged amid discussions with the opposition Democratic Party for the People on lowering the tax.

The LDP and Komeito's tax panel chiefs entered detailed negotiations on the matter Thursday night, and the two sides reached a conclusion, with the LDP partially adopting the junior party's proposal.

"It was the best if (the hikes of) the three taxes could be decided all together as planned," Miyazawa told reporters. At the same time, he said, "I think it is commendable to some extent that we could at least decide on the corporate tax and tobacco tax (hikes)."

Miyazawa said that the defense budget can be increased by about ¥1 trillion ($6.5 billion) a year through the corporate and tobacco tax hikes, adding, "It's not so different from the original plan."

To boost defense spending, the government is looking to add a surtax of 1% to the income tax, while lowering by 1 percentage point the rate of the special reconstruction income tax, which has been collected since 2013 to finance reconstruction programs in areas hit hard by the March 2011 Great East Japan Earthquake and tsunami. While the annual tax amount will not increase, the burden on taxpayers will eventually grow as the collection period for the special reconstruction income tax will be extended.

Ahead of the House of Councilors election next year, Komeito, concerned about the image of higher taxes being attached to the ruling coalition, wanted a conclusion consistent with ongoing income tax cut discussions.

The government plans to add a surtax of 4% to corporate taxes from April 2026, which will not target over 90% of small and midsize businesses, and raise the tobacco tax by ¥0.5 per cigarette annually from April 2027 for three years after increasing the tax rate on heated tobacco products to the same rate as that on cigarettes.

The government outlined in its fiscal 2023 tax system reform package a plan to secure over ¥1 trillion in fiscal 2027 for defense expenditures through corporate, income and tobacco taxes, saying it would implement tax hikes in stages over several years. But the ruling bloc failed to decide on the timing of tax hikes for two straight years.