Hometown ‘tax’ donations system catching on


Staff Writer

Japanese may not be known as the most charity-minded people in the world. But if there is one charitable activity that has proved a hit in this country in recent years, it’s the “furusato nozei,” or hometown tax.

Despite its use of the word “tax,” the furusato nozei is essentially a means for people to make donations to municipalities and prefectures of their choice.

And dovetailing with its rising public popularity, the donation program’s political importance has likewise surged, as Prime Minister Shinzo Abe apparently considers it an instrumental part of his administration’s much-hyped “regional revitalization” policy.

And yet concerns are being raised that the program’s philanthropic intent has increasingly faded as more people seem to use it purely for financial gain.

Following are questions and answers regarding furusato nozei:

What is furusato nozei?

It’s a donation that people offer to the local or prefectural government of their choice.

The program was originally proposed in 2007 during Abe’s previous short-lived government, and then officially launched in 2008 as a way to help revitalize regional economies.

Although “furusato” (hometown) is part of the name, municipalities that people pick don’t necessarily have to be their hometown. They can pretty much pick any village, town, city or prefecture that they want to help out.

Its connection with “nozei” (tax) stems from the fact that donors qualify for deductions in their income and residential taxes that are almost big enough to offset the donation.

In response, many municipalities repay the donors’ generosity by sending them original gifts, in the hopes of drawing in more contributions.

How popular is the program?

Since its introduction in 2008, furusato nozei has enjoyed a steady rise in popularity.

According to statistics from the Internal Affairs and Communications Ministry, the annual number of donors declared eligible for tax deductions through the program more than tripled from 2008 to 106,446 in 2012, while total donations reached ¥13 billion in 2012, up about ¥6 billion 2008.

There was a surge in donations in 2011 from people concerned about residents in the Tohoku region after it was ravaged by the March 11 quake, tsunami and reactor meltdowns, resulting in a whopping ¥64 billion in donations in total.

Why is it so popular?

One reason is that contributors receive reciprocal regional goodies.

For example, the town of Kamishihoro, Hokkaido, which, according to furusato nozei portal site Furusato Choice (www.furusato-tax.jp) operates one of the most popular donation programs, rewards its donors with locally produced beef, potatoes, cans of honey and other items.

The town received ¥240 million in donations last year, an official in charge of the program said. Of that amount, about 35 percent, or an estimated ¥84 million, was booked as net profit, while the remaining 65 percent went toward costs related to preparing and sending out the delicacies.

Another positive is that in many cases, contributors can designate how their donations are used.

Tokamachi, Niigata Prefecture, allows donors to decide what particular policies or projects they want their money to aid, such as creating a more elderly-friendly society, boosting efforts to preserve nature, or promoting sports and arts-related activities.

How does it work?

Prospective contributors first contact the municipalities and apply to donate, such as via their websites. A contributor can donate to multiple municipalities at the same time if so desired.

How large are the tax deductions?

Donors are theoretically reimbursed for most of their outlays.

In actual practice, however, contributors need to be careful about two things.

One is that they won’t be able to claim the deductions unless they file a tax return. Also, there is a limit on the amount a contributor can deduct, meaning a donor can’t expect a contribution beyond the limit to offset actual taxes owed.

The upper limit depends on a donor’s annual income and family composition. But the basic rule is that the higher the donor’s usual tax payments, the more deductions that can be claimed.

High-income individuals are thus more likely to benefit. For example, an unmarried individual who earns ¥7 million annually can claim a tax cut of ¥48,000 for a ¥50,000 donation, while someone with an annual income of ¥3 million will only be repaid about ¥20,000 for the same amount donated.

Are there changes in store for the program?

The Abe administration, which touts revitalizing regional economies as a key policy goal, is now eyeing a possible expansion of the furusato nozei program.

One idea, according to an internal affairs ministry official, is to double the maximum amount of donations that can be offset by tax deductions. The ministry may also consider simplifying the process in which donors file annual tax returns to encourage more applications, the official said.

Are there any drawbacks to furusato nozei?

Although smaller communities benefit from the program, critics say it is taking tax revenues from major metropolises like Tokyo, home to many donors eligible for the tax breaks. This situation could even be intensified if the government forges ahead with its planned expansion of the program.

The internal affairs ministry official brushed off such concerns, saying that in Tokyo, for example, tax revenue decreases caused by the program represent only a tiny percentage of the capital’s entire tax haul.

Concerns have also been raised that many donors appear interested only in the gifts and not in the charitable intent. This is leading some municipalities, the official acknowledged, to compete for donors by offering ever-more attractive goods.

Nagoya, however, is not one of them.

Although it does show its appreciation by sending contributors letters of thanks, the city is determined not to reward donors with expensive local delicacies.

“We thought sending people attractive goodies would make it look like we are pressuring them to repeat their donations to us,” Nagoya official Norihiro Nakamura said. “Rather, we want donors to feel genuinely motivated to support our policies.”

The ministry meanwhile admonished municipalities nationwide in September 2013, urging them to employ “greater common sense” in deciding what thank-you gifts to send to donors.

“If we’re really going to expand the furusato nozei program, we believe our key challenge will be to not further heat up the preoccupation municipalities have over gifts,” the official said.