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The Abe administration plans to expand the hometown donation system in which taxpayers contribute money to local governments of their choice in return for tax reductions in the places where they currently live. It hopes the reform to be introduced in fiscal 2015 will contribute to revitalization of rural areas — one of its key policy agendas.

In doing so, it will be important for the administration to remind taxpayers that the system was originally meant to financially help one’s native place in the countryside that is suffering from depopulation and other woes, thereby rectifying the excessive concentration of financial resources in large metropolitan areas.

These days, however, many people apparently use the system in order to get rewards — mostly gifts of local specialities — from local governments to which they make the donations.

The system was introduced in 2008. If people make donations to prefectural or municipal governments they like, they will get deductions in the income tax and the resident’s tax imposed by the municipalities they live in. The donated amount minus ¥2,000 will be deducted from the amount of tax one has to pay.

A ceiling is set on the amount of donation eligible for benefits under the system depending on one’s annual income and family size. The higher the income of donors, the higher the maximum amount of tax deductions they can get.

For example, the upper limit for a childless couple with an annual income of ¥5 million is ¥30,000. The couple will get a tax cut of ¥28,000 if they file an income tax return with taxation authorities.

A couple with two children having an annual income of ¥100 million will get a ¥1.9 million deduction.

The administration is thinking of roughly doubling the ceiling level and simplifying the procedure for filing the report with the tax office.

The number of people using the system is increasing. In 2008, about 33,000 people used the system to make donations to local governments across Japan. The number increased to some 106,000 in 2012.

The annual amount donated rose from ¥7.3 billion in 2008 to ¥13 billion in 2012.

One of the original purposes of the system was to offer people a means of expressing their gratitude to their hometowns in the form of tax-deductible donations for helping them grow through local education and administrative services.

These days, however, that spirit seems to be lost because some local governments have started offering attractive gifts in exchange for the donations.

Some people have come to regard the system as a means of getting local specialties rather cheaply.

In many cases, local governments send a gift worth ¥3,000 to ¥5,000 to somebody who donated ¥10,000. This means that by effectively spending ¥2,000 (after the tax deduction), the donor can get local specialities worth more than that.

For example, the town of Genkai, Saga Prefecture, has started offering a gift of local beef and sea bream. This has helped increase the amount of donations the town receives from ¥4.17 million in fiscal 2012 to ¥250 million in fiscal 2013, surpassing the total annual income tax revenue collected from local residents.

The city of Yubari in Hokkaido has started giving melons worth ¥4,000 to people who have donated ¥15,000 or more. This has helped increase the total amount of donations from ¥24.85 million in fiscal 2013 to ¥45.35 million this fiscal year.

A simplified procedure for the donation system as contemplated by the Abe administration will not necessarily result in increased donations because specialty gifts from local governments are now a major incentive for those who make the donations.

Would it be too much to expect moderation on the part of local governments to restore the original spirit to the system?

Instead of gifts, organizing a tour of their areas would be one alternative, which will help people who have donated money obtain better knowledge about the municipalities they have financially helped. Moreover, a survey in 2013 by the internal affairs ministry shows that a quarter of prefectural governments and a half of municipalities that received donations did not disclose how they used the money. They should make public how the money is helping them.

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