The use of the furusato nōzei hometown tax donation system, under which people give tax-deductible donations to municipalities and receive gifts such as local specialties in return, has been growing as many spend more time at home amid the COVID-19 pandemic. But not all municipalities are benefiting from the program.

In Mie Prefecture, the municipal government of Tsu, the prefectural capital, saw the value of such donations to the city in fiscal 2021 mark a record high for a fiscal year as of the end of February. However, after deducting the taxes of citizens who made donations to other municipalities, the city’s budget deficit is likely to expand.

Meanwhile, some other municipalities in the prefecture are successfully boosting their budget surplus by conducting promotional campaigns and offering more attractive items as return gifts.

The furusato nōzei program, launched in 2008, allows people to make donations to their hometowns or other municipalities they want to support and have the value of their donation minus ¥2,000 deducted from the income tax and resident tax they pay to the municipalities where they currently live. In addition, municipalities that receive payments send gifts of local goods in return.

The central government revised the program in 2019 after competition intensified among municipalities to attract donations by offering luxurious return gifts, limiting such gifts to local products worth 30% or less of the amount donated. Municipalities that fail to follow the rules are excluded from the program.

Municipal governments are finding they need to come up with more ingenious ways to secure adequate tax incomes, amid concern their decline could lead to deteriorating public services for residents.

“If we don’t do anything, our precious tax revenues will continue to drain (from the city),” said an official at the Tsu Municipal Government who described a sense of crisis.

Donations to the city, which amounted to some ¥76 million in fiscal 2019, topped ¥240 million in fiscal 2021 as of the end of February. Gifts offered in return for tax donations, such as premium Matsusaka beef and processed beef products, attracted huge popularity after a website offering information on the furusato nōzei program ran a feature on sukiyaki-related items in fiscal 2020.

However, donations under the program are increasing nationwide and totaled a record of around ¥670 billion in fiscal 2020, according to the internal affairs ministry. As a result, the value of tax receipts deducted under the program at each municipality also rose.

In Tsu, such deductions increased from about ¥370 million in fiscal 2019 to a record high of ¥515 million in fiscal 2021. Simply subtracting the value of those tax deductions from the donations received in fiscal 2021 shows that Tsu will face a deficit under the program of nearly ¥270 million — up by around ¥60 million from the previous year.

In order to boost efforts under the program, authorities in Tsu plan to have their gifts posted on more websites that share information about the furusato nōzei system. They hope to encourage more donations by increasing the lineup of other items including broiled eel with sauce, another of the city's local specialties.

The larger the population of a municipality, the more people are likely to donate to other places — leading to more tax deductions. In fiscal 2021, major cities like Yokohama and Nagoya were high up on the list that ranked municipalities in terms of the amount of tax deductions.

In the city of Yokkaichi, which has the largest population in Mie Prefecture, tax deductions totaled ¥650 million — a record high — while donations to the municipality are expected to be around ¥50 million.

“We don’t offer gifts in return that can attract popularity, such as high-grade meat products or crabs,” said a Yokkaichi city official explaining the weakness of its program.

Tsu is not the only city offering nationally renowned Matsusaka beef as a gift in return for tax donations.

The city of Matsusaka leads the competition. It had received a record high value of donations at some ¥1.35 billion as of March 14, out of which more than 80% requested Matsusaka beef-related products. The value of tax deductions from the city under the program for fiscal 2021 was about ¥215 million, which means the city gained a surplus of more than ¥1 billion.

The town of Odai, which also actively promotes Matsusaka beef as a gift, had accepted donations of some ¥250 million as of March 17 — more than tripling the total logged the previous fiscal year and largely exceeding its ¥7.7 million in tax deductions under the program for the year.

The town undertook various promotional measures, entrusting an agency to create better advertising photographs and slogans for gifts that were then published on websites with information about the furusato nōzei program.

The town of Meiwa collected some ¥1.5 billion in donations under the program in fiscal 2020, the largest amount among municipalities in Mie. It offers a unique service by sending Mie-grown rice as one of its gifts.

Those who applied to offer donations to the town and receive rice in return can choose to have it delivered to their homes in a specific two-week period within 18 months after filing their application.

Thanks to such measures, many people are making donations to the town repeatedly, with the total amount of tax donations received under the program ballooning to some 90 times the town's ¥17 million in tax deductions.

Takaaki Hoda, a professor at Kobe University Graduate School who is well-versed in the furusato nōzei system, says the smaller the municipality, the more weight the donations carry.

“In that sense, it is a system that works to reduce disparities” among municipalities, said Hoda, who rates the program highly.

While he acknowledges municipalities with attractive local specialties are at an advantage, he points out that municipal governments failing to collect donations are not making enough of an effort, adding that they should be able to come up with ideas for gifts, including some that are experience-based.

“They are no longer in a stage for working on the program as a sideline,” said Hoda, who suggested that each municipality set up a division dedicated to the program and make efforts with a clear numerical target.

“Unless they strengthen measures, they will continue to lose out.”

This section features topics and issues from the Chubu region covered by the Chunichi Shimbun. The original article was published March 28.