Japan’s Ministry of the Interior and Communications announced on June 25 that it would review the rules governing local taxes, based on a system of donations to the city of one’s choice.
Japan’s Minister of the Interior and Communications on Tuesday declared a ban on local governments soliciting donations for local taxes through intermediary websites that award points to users.
Local tax programs, or furusato nōzei as they are known in Japanese, allow taxpayers to make donations to municipalities. In return, they benefit from deductions on other taxes such as income tax.
But for several years now, intermediary sites have been appearing to manage donations to municipalities.
These sites, which are being used more frequently, enable towns to outsource the collection of donations, and users to make their donations via simple procedures. To keep users in the loop, the sites have run aggressive communication campaigns and created a cashback system via the awarding of points.
The four main intermediary sites — Rakuten Furusato Tax Payment, Satofuru, Furusato Choice, and Furu-Navi — account for over 90% of the market share. Rakuten, the largest, is said to have grown rapidly thanks to its points exchange business.
In response to the intensifying competition between these sites, the ministry has announced that donations collected by these intermediaries will no longer be deductible under the tax system.
The furusato nōzei
Since points from intermediary sites are supposed to be partially funded by commissions paid by local governments to site operators, the ban on points should lead to a relative increase in revenue for these governments, a ministry official told the Nikkei media outlet.
Japan introduced the furusato nōzei (“hometown tax”) in 2008, noting that nearly 92% of the Japanese population lived in cities. When young people move to urban areas and start their careers, their tax contributions go to their adopted city, leaving the countryside with an aging infrastructure and population — many of whom are tax-exempt retirees.
Two key factors make the furusato nōzei “tax-donation” program unique: firstly, taxpayers don’t have to donate to their hometown — any participating town will do, and secondly, donations are often rewarded with a special thank-you gift. So, depending on the amount donated, taxpayers can expect to receive in return a bottle of locally fermented Japanese sake, vouchers for local attractions, Wagyu steak fillets, or even bags of onions.
A million yen to become a station manager
But it seems that this system, created to save small, deserted villages from bankruptcy, has gone a little off the rails.
Last May, Tokyo’s 23 municipalities announced that they would diversify their offerings under the donation program, focusing on “hands-on experience” gifts that showcase local attractions. Initially reluctant to join the race between local municipalities to attract taxpayers with gifts, Tokyo’s districts are now embracing the program as some see their tax revenues dwindle.
Indeed, this local tax in the form of unpaid gifts to the place of residence of Japanese taxpayers tends to create an unequal tax system between cities. For example, the redistribution of tax revenues penalizes Tokyo’s Setagaya district, to the benefit of rural towns. In 2024, this part of the city is set to lose almost $70 million in tax revenue as a result of deductions under the hometown tax system, reports the Wall Street Journal.
Toshima Ward, which uses anime and manga to promote the region, recently introduced tickets to a monthly cosplay event held in the ward as a gift option for donors contributing at least 20,000 yen (124 dollars). For a donation of 530,000 yen (3,300 dollars) or more, donors can take advantage of a package including professional make-up and cosplay costumes – the practice of embodying a manga, anime, or video game character. “In the future, we’d like to reduce the unit price of donations so that the service can be used by more people,” a service manager told The Japan Times.
Last October, as part of a unique partnership with East Japan Railway, the Shinjuku district offered a one-day station manager experience at Shinjuku Station, one of Japan’s busiest train stations, for a donation of at least 1,000,000 yen (nearly 6,200 dollars).
