The Tax Commission, an advisory panel to the prime minister, said Friday in a report that it will increase exemptions for donations made to nonprofit organizations.
"In Japan, the culture of giving has not yet taken root," Tax Commission Chairman Hiromitsu Ishi told a news conference. "I hope tax revisions will help change that."
The changes, which will be discussed over the next two years, go hand-in-hand with the government's plans to encourage more NPO activities, as recommended by the Cabinet in December, the report says.
For an NPO to get tax breaks, it must be approved by a Cabinet panel of four private-sector experts who judge whether the organization's contribution to the public good merits preferential tax status.
Ishi said the changes are also an extension of Prime Minister Junichiro Koizumi's pledge to withdraw the government's presence from areas where the private sector can do better.
"There are areas where public-sector participation creates inefficiencies and the private sector cannot venture into due to considerations for profitability," Ishi said.
"That's where NPOs and volunteers fit in. I believe (an active NPO sector) will also lead to economic revitalization."
The members of the Tax Commission have agreed that approved NPOs' income from contributions should either be tax-free or taxed at a preferential rate, and that donors should also be able to claim more of their donations as tax-deductible.
Currently, contributions of less than 10,000 yen are not deductible, nor are donations in excess of 30 percent of total income in the course of a year.