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MIC tasked with addressing excessive Furusato Nozei rewards

  • February 17, 2017
  • , Nikkei , p. 3
  • JMH Translation

The Ministry of Internal Affairs and Communications (MIC) has been keeping a close eye on the excessive services provided by municipalities for the Furusato Nozei, or hometown tax deduction program. The ministry will implement corrective measures this spring to discourage lavish gift giving and offers of gifts that have little to do with the municipalities. February 16th is the first day of filing 2016 income tax returns. The central government must strike a good balance between instilling an appropriate sense of taxpayer responsibility upon the public and empowering them to contribute to revitalizing the local economy while remaining true to the original intent of the Furusato Nozei system.

 

“We will identify all the issues and discuss how to address each challenge,” stated MIC Minister Sanae Takaichi at the house of representative committee meeting held on the 16th. She shared plans to revisit the tax program by spring.

 

The Furusato Nozei program allows donors to make a charitable donation to the municipality of their choice, and receive a tax break worth the amount donated minus 2,000 yen. It is essentially an income tax refund from the central government, and a municipal resident tax write-off for the donor. Moreover, donors receive thank-you gifts from the municipalities they donated to, all for 2,000 yen out-of-pocket.

 

This program was designed to channel tax revenue from cities to rural municipalities to revitalize their economies, but because of its explosive popularity, there have been repercussions, one of which is the excessive competition in offering luxury reward gifts. “Too much money is being spent on return gifts, and not enough on civil services,” says MIC Minister Takaichi.

 

Municipalities across the nation received during fiscal 2015 a total of 165.3 billion yen in Furusato Nozei donations, 79.3 billion of which was spent on procuring return gifts. This means that only half of the donations were used by the municipalities.

 

Katsuura city of Chiba prefecture started offering gift certificates from fiscal 2016; someone who makes a donation of 10,000 yen receives a 7,000-yen money coupon. This resulted in an 11-fold increase in donations. Takaichi publicly expressed concern about the nature of the gift as many of the gift certificates were being sold on the Internet for about 70% of the value. Katsuura city will address this concern.

 

“[The return gifts] are left up to each municipality,” explains one MIC official. “We can’t legally ban the practice.”  However, the government plans to implement some kind of corrective measure this spring. MIC will establish guidelines on appropriate types and value of the reward gifts to curb lavish gift giving. Municipalities will be counseled individually if they are seen as abusing the system.

 

Another repercussion is the fierce competition among municipalities over tax revenue. Tokyo’s Setagaya Ward estimates the Furusato Nozei system had cost it 13 billion yen in tax revenue in fiscal 2016, which is more than five-fold the previous year’s figure.  It is difficult for Tokyo’s wards to offer locally-produced specialty goods, and frustration is mounting among urban municipalities as they watch their tax revenue dwindle. “It is disrupting our ability to sustainably provide public services,” laments Setagaya Ward Mayor Nobuto Hosaka. “The intent has gotten distorted.”

 

Some sparsely populated rural municipalities, the intended beneficiaries of this tax program, are losing tax revenue. While these local governments struggle to attract donations, they cannot stop their residents from donating to other municipalities. Hakodate city of Hokkaido Prefecture, a designated underpopulated region, lost 31 million yen in tax revenue in fiscal 2015. MIC is coming up with measures to correct these unintended outcomes.

 

When the central or local governments lose tax revenue, nothing can be done but issue more government bonds. This means that the national population is bearing the burden of funding the excessive reward gift competition.  Urban municipalities are not exempt from the challenges of antiquated infrastructure and social security policies. The ever-growing popularity of the Furusato Nozei program has inadvertently shed light on the difficulty of balancing the demands of urban redevelopment with rural revitalization.

 

 

Problems related to Furusato Nozei reward gifts

 

Akitsu City, Shizuoka prefecture

Stopped offering iPads in compliance with MIC’s notice

Nakano Ward, Tokyo prefecture

Offered specialty goods from other municipalities

Ohta City, Gunma prefecture

Offered reward gifts to local residents to discourage them from donating to other municipalities

Naharicho, Kochi prefecute

Ayamachi, Miyagi prefecture

and 10 other municipalities

Furusato Nozei donations received in fiscal 2015 exceeded fiscal 2014 tax revenue

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