The tax panel of Japan's main governing Liberal Democratic Party has discussed a plan to use three types of taxes to fund a bigger national defense budget.

The panel on Tuesday began debate on how to increase taxes to cover a defense budget shortfall of more than one trillion yen, or over 7.3 billion dollars.

On Wednesday, senior officials of the panel presented a tentative plan for combined use of corporate income taxes, the tobacco and cigarette tax, and the special income tax for reconstruction of areas affected by the 2011 earthquake and tsunami.

With regard to corporate income taxes, an additional tax would be levied across the board.

But 10 million yen's worth of income would be deducted from taxable income, so that small and mid-sized businesses would in effect be spared a tax hike.

The tobacco and cigarette tax would be raised in phases with sufficient consideration for domestic tobacco farmers.

As for the special income tax for reconstruction, the amount allocated for rebuilding would be lowered and the margin used as additional funding for the defense budget.

Payment of the special income tax is set to continue through 2037, but the term would be extended to ensure funds for reconstruction.

The plan does not mention specific tax rates or when they would be implemented, but they are expected to generate just over one trillion yen by fiscal 2027.

Some in the LDP oppose using the special income tax to cover the defense budget. Panel officials explained that reconstruction of disaster-hit areas would not be affected, and promised careful discussions.

Panel chair Miyazawa Yoichi told reporters after the meeting that the panel's key members agreed in the end to use the tentative plan. He added that the panel will work on tax rates and other details from Thursday to present a finalized plan to Prime Minister Kishida Fumio.