The furusato nōzei (hometown tax donation) system introduced in 2008 is a program that allows taxpayers to make donations to municipalities of their choice and get much of the amount deducted from their income and residential taxes. It was intended as a step to alleviate the gap in tax revenue between big cities and rural areas as the population flight from the latter to Tokyo continues unabated. And the amount of the donation surged in particular after the administration of Prime Minister Shinzo Abe, as part of its regional revitalization initiatives, doubled the upper limit on the tax-deductable donations (which varies according to the donor's income and other conditions). The annual amount of donations made to municipalities across the country reached ¥365.3 billion in fiscal 2017 — 45 times larger than in its initial year.
What has also boosted the amount of the donations are the "gifts" returned to the donors by the municipalities that received the donations — over which there was no regulation in the program. While the name of the program may suggest that people would donate to the local governments of their hometowns, donors can choose any municipality they like to make the donations. In recent years competition has intensified among municipalities to offer extravagant gifts to attract donations, and the donations have tended to concentrate on the municipalities that offer expensive gifts, ranging from brand-name beef and seafood to bottles of imported wine, electronics products and coupons for a resort hotel in Hawaii.
In its attempt to rein in the overheated competition to attract donations with luxury gifts, the government has repeatedly urged municipalities to refrain from offering expensive gifts priced at more than 30 percent of the donations made or providing gifts other than their local products and specialities. But such calls have gone unheeded by some of the municipalities, which continued to overshoot the government-set guideline on the gifts, leaving the municipalities that follow the guidelines at a disadvantage.