A court Thursday ruled that the government acted lawfully in removing a city that offered extravagant gift incentives to attract tax-deductible donations from the furusato nōzei (hometown tax) program, marking a first in the conflict between the central and local governments over the program.

The Osaka High Court said the internal affairs ministry's decision to bar the city of Izumisano in Osaka Prefecture from the revised program, which began in June last year with new regulations on gift incentives, was justifiable.

The program, originally launched in 2008, allows taxpayers to donate to their hometowns or other municipalities of their choice and receive tax cuts, with the aim of easing the disparity in tax revenue between urban and rural areas.