The government said Tuesday it will drastically rework the furusato nōzei (hometown tax donation) system — originally introduced to ease the disparity in tax revenue between urban and rural areas — by curbing extravagant gift incentives aimed at attracting tax-deductible donations.

The program, launched in 2008, allows taxpayers to donate to their hometown or any municipality of their choice and receive tax cuts. But it has led to fierce competition among local governments to lure donations with expensive gifts such as vouchers and personal computers.

There have been concerns that only financially viable municipalities will be able to lure donors, which would be contrary to the program's aim of alleviating tax revenue disparity.