The so-called hometown tax donation system — in which people who make donations to local governments of their choice get the amount (up to certain limits) deducted from the local tax imposed by the municipality where they reside — was introduced in 2008 to shore up the finances of struggling communities in rural areas. Now a dispute between the Internal Affairs and Communications Ministry and the city of Izumisano, Osaka Prefecture, over the system is set to develop into a court battle with implications for local autonomy and decentralization of administrative powers.
What’s at stake is a decision by the internal affairs ministry to exclude Izumisano from the tax donation system when it was revised in June on the grounds that the city had defied the ministry’s earlier request to limit “return gifts” to donors to local specialities worth up to 30 percent of the value of the donations made. Responding to a complaint by Izumisano, the Central and Local Government Dispute Management Council issued a recommendation last month that the ministry reconsider the decision against the city. This month, however, the ministry stated that its decision to exclude Izumisano from the system will not change, defying the recommendation by the dispute management panel.
The panel was launched in 2000 as part of the measures to decentralize administrative powers — which in principle changed the relationship between national and local governments from that of superior and subordinate to cooperation between equals — and is designed to check excessive intervention by the state in the matters of local autonomous bodies. The ministry’s move to effectively dismiss the panel’s recommendation in its dispute with Izumisano could mark a setback to decentralization. While the dispute calls for further review of the tax donation system, the principle under the law on local autonomy to minimize state intervention in the administration of local governments also needs to be reconfirmed.
The tax donation system has become popular, with municipalities nationwide collecting a total of ¥512.7 billion in fiscal 2018. However, as the municipalities began to provide lavish return gifts to donors, competition intensified among the municipalities to offer more attractive and expensive gifts in an effort to solicit more donations. While the program was originally meant to enable urban residents to contribute to their rural hometowns, it has turned into a venue for many donors to shop for pricey goods and services at bargain prices. There are also views that the system runs counter to the principle that beneficiaries should pay local taxes.
After its requests failed to rein in the heated competition between the municipalities, the internal affairs ministry legally revised the system in June so that only municipalities that meet its criteria, including limiting return gifts to local specialities valued at no more than 30 percent of the donation, could participate in the system. Donors to the municipalities excluded from the system would not be entitled to the tax deduction. Four cities and towns, including Izumisano, which collected ¥33.2 billion from last November to March by offering Amazon gift certificates as return gifts, were rejected.
The Izumisano Municipal Government challenged the exclusion, saying that it had not broken any law because until June the ministry had only requested the municipalities to voluntarily limit gifts, and took the case to the dispute management panel. The panel concluded that the ministry’s decision may constitute a violation of the law because it punishes the city for acts committed before the new system was introduced, thereby overstepping the confines of the law. But while the law on local autonomy requires the central government bureaucracy to take steps in line with the panel’s recommendations, the ministry insisted its decision was legitimate. The city of Izumisano announced Friday that it will take the case to court.
The doubt cast by the panel over the ministry’s decision — which punished Izumisano for violating its request that was not legally binding and was issued before the tax donation system was legally revised — is reasonable. There has been criticism that since its inception the panel did not serve its intended function of addressing complaints by local governments against the state. The fact that the internal affairs ministry, which is in charge of local autonomy, defied the recommendation of the panel could further undermine its authority.
The questionable ways in which some municipalities solicited donations by offering lavish return gifts aside, the ministry’s latest decision raises questions from the viewpoint of local autonomy and decentralization of administrative powers.