In order to cool down heated competition among local governments seeking to attract donations with offers of expensive gifts for benefactors, the government Friday adopted a bill to overhaul the furusato nōzei hometown tax donation system.
The amendment to the law on local taxation calls on local governments to limit, from June, return gifts to local items with procurement costs at or below 30 percent of the value of the donations.
According to the bill, “local items” refers to products made or services offered in areas in the respective municipalities and prefectures. The internal affairs ministry will come up with a detailed definition later.
Prefectures and municipalities that fail to comply with the rules will be excluded from the donation system, and donors will cease to be eligible for tax reductions as a result. Local governments that have been excluded will be banned from rejoining the system for two years.
Under the system, people can make donations to prefectures or municipalities of their choice, which do not necessarily have to be their hometowns, and the donors qualify for income tax cuts.
Many recipient local governments offer gifts to donors in return, with some of them offering expensive items to attract more donations.