Foreign residents in Japan face a series of significant tax and financial policy changes as the government finalizes its fiscal year 2025 tax reforms. From new vehicle levies to defense-related income tax increases and healthcare cost adjustments, these changes will impact household budgets across the country. Defense Tax Implementation Postponed to 2027 The controversial defense tax increase, designed to fund Japan's expanded military capabilities, appears headed for a delayed implementation. According to NHK, members of the ruling Liberal Democratic Party's tax commission have voiced strong support for postponing the income tax increase until January 2027, rather than the originally proposed 2026 start date. The delay follows negotiations between the LDP and the Japan Innovation Party (Nippon Ishin no Kai). In meetings between the parties' tax policy chiefs, Ishin representatives emphasized the need for "careful deliberation" on the defense tax issue, signaling resistance to a rushed implementation. The parties have agreed to continue discussions, though no final decision has been reached. For foreign residents, this postponement provides additional time before facing higher income tax bills. The defense tax is expected to apply to all income tax payers in Japan, including permanent residents and long-term visa holders, though specific rates and exemption thresholds have not been finalized. New Weight-Based Tax Coming for Electric Vehicles In a significant shift for EV owners, the government is moving forward with plans to introduce weight-based taxation for electric vehicles starting in fiscal year 2025. According to NHK, policymakers argue that EVs are typically heavier than gasoline-powered vehicles and therefore place greater stress on road infrastructure. Currently, EVs enjoy substantial tax advantages over conventional vehicles, including exemptions from certain automobile taxes. The new weight-based levy would reduce this gap, potentially affecting the total cost of EV ownership for foreign residents who have purchased or are considering purchasing electric vehicles. The specific tax rates and implementation timeline remain under discussion, but the policy represents a notable reversal from Japan's previous approach of heavily incentivizing EV adoption through tax breaks. Foreign residents planning vehicle purchases should monitor these developments closely, as the changes could significantly impact long-term ownership costs. Healthcare Cost Reforms Target Over-the-Counter Drug Alternatives Prime Minister Takaichi has directed government ministries to finalize reforms affecting prescription drug coverage by year-end, with implementation planned for the 2025 budget. The reforms focus on medications with similar ingredients and effects to over-the-counter drugs, known as "OTC-similar drugs." According to NHK's reporting from the Council on Economic and Fiscal Policy meeting, patients may face higher out-of-pocket costs for these medications under the national health insurance system. This change aims to reduce healthcare expenditures by encouraging patients to purchase certain medications directly rather than through insurance-covered prescriptions. For foreign residents enrolled in Japan's national health insurance, this could mean increased costs for common medications currently obtained through doctor visits. The reforms may make it more economical to purchase certain drugs at pharmacies without prescriptions. However, the Ministry of Health, Labour and Welfare has decided to maintain current limits under the "multiple-occurrence" provision of the high-cost medical care system, which protects patients requiring long-term treatment. This provision caps monthly medical expenses for chronic conditions, providing continued protection for residents facing serious or ongoing health issues. What This Means for Foreign Residents These policy changes reflect Japan's efforts to address fiscal pressures from defense spending and an aging population. Foreign residents should prepare for a shifting financial landscape by reviewing their vehicle ownership plans, understanding potential healthcare cost increases, and budgeting for the eventual defense tax implementation. As these policies move through final deliberations in December, staying informed about implementation details will be crucial for financial planning in 2025 and beyond.