Yaizu City offers an entire tuna to donors who shell out 500,000 yen (US$4,490), although the catalogue listing warns that the whole fish is too big to fit inside a standard household refrigerator. Photo: www.furusato-tax.jp
Yaizu City offers an entire tuna to donors who shell out 500,000 yen (US$4,490), although the catalogue listing warns that the whole fish is too big to fit inside a standard household refrigerator. Photo: www.furusato-tax.jp

The well-documented decline in Japan’s population has hit rural regions and smaller towns hardest, and along with the loss of people in these areas has come a drop in tax revenue, adding to the woes.

So in a piece of creative legislation not common to Tokyo bureaucrats, a program was set up known as hometown tax payment, or furusato nozei in Japanese.

As the name suggests, people can donate funds to support their birthplace after they have moved elsewhere for work, education or other reasons. But the scheme, which has been running for several years, is far more interesting than just that and may be about to become a victim of its own runaway success.

To sweeten the furusato nozei deal, the government made any donation tax-deductible and then added to the attraction by making it open to anyone in Japan (even a foreign resident) who has an inkling to support a particular town or region.

Suddenly, local authorities were in competition to attract donations from wealthier city dwellers, and so they added another sweetener: Make a donation to our town and beside the tax deduction that comes with it, we’ll also provide a “thank you” gift delivered to your door.

Donations of about 10,000 yen, or less that US$100, were rewarded with gifts ranging from boxes of tangerines, a selection of fresh vegetables, or a bottled selection of sake.

A delivery of fresh fruit and vegetables for those who make donations to Hirado City, with the contents varying depending on the season. Photo: Hirado City

Shell out 20,000 yen and Soo city in Kagoshima prefecture will thank you with a pack of tenderloin steaks; the same donation to Yabu city in Hyogo prefecture comes with a 1.5 kilogram pack of fresh crab.

Fancy a digital piano?  Donate 200,000 yen to Shizuoka prefecture and it’s coming your way. Whisky? In need of a bicycle?

If this is starting to sound like browsing a tax-deductible online shopping site, the central government in Tokyo noticed that, too.

As competition heated up between depopulating regions chasing yen donations so did the largesse with the thank-you presents. Tokyo is now asking local authorities to rein it in.

Taxing choices

Nationwide, the total donations under the scheme surged to a whopping 165.3 billion yen (US$1.5 billion) in the year to March 2016.

That was more than four times the previous fiscal year’s total, according to the Internal Affairs and Communications Ministry. The ministry said an increase in deduction limits and more attractive local incentives fueled the trend.

Hirado City, a municipality of Nagasaki prefecture in south-west Japan, has been one of the more successful beneficiaries of the scheme.

Hirado City’s most popular thank-you gift is this dried fish set. It is available to people who donate at least 10,000 yen to the city. Photo: Hirado City

Hirado City logged 46,700 donations totaling 2.6 billion yen in the year to March 2016 – which, astonishingly, was nearly as much as the city’s ordinary tax revenue of 2.8 billion yen.

It’s no surprise that the city is looking for ways to supplement its income, given that its current population of 32,466 is 16% lower than it was 10 years ago.

“Hirado does not have a lot of internal revenue sources; therefore this income is very important,” a spokesperson said in an emailed response to questions.

“Hirado was the first city in Japan to implement a point system into furusato nozei. These points can be redeemed for items from the catalogue. I believe this is the reason that we managed to collect such a great amount of donations.”

A donation of 10,000 yen earns 4,000 points, which the donor can use to order items such as a ramen noodles or a basket of locally grown seasonal fruit and vegetables.

Among the products worth 4,000 points is a Hirado dried fish set –which, the city said, was the most popular option last year.

For twice as many points, a donor can opt for 1.5 kilograms of slipper lobster. At the higher end of the scale, options listed on the Hirado website include holiday accommodation, an electric bicycle and even wedding photography packages.

A pack of 1.5kg of slipper lobster is one of the gift options for people who donate at least 20,000 yen. Photo: Hirado City

On a less festive note, there’s also a cemetery cleaning service to help out-of-towners who aren’t easily able to maintain the Hirado gravesites of relatives.

Roses & tuna

Yaizu, a city in the seaside prefecture of Shizuoka, offers its most generous donors the opportunity to receive delivery of an entire 18-kilogram tuna.

The tuna is available for donors who shell out 500,000 yen (US$4,500), although the listing on a catalogue website warns that the whole fish is too big to fit inside a household refrigerator.

A more convenient option, at the same price, is to accept it in portions: 6 kilograms once a month for three months. The catalogue also features smaller fish offerings.

“Because Yaizu city is a fishery city, products such as tuna and bonito along with processed marine goods are popular,” a spokesperson said by email.

Yaizu officials expect donations to add up to about 5.1 billion yen in the year to March 2017, roughly one-fifth of its revenue from city taxes.

Half of the donation pool is used to fund the thank-you items supplied by local traders, which officials believe are “useful for Yaizu city’s industrial promotion.”

The rest helps pay for programs such as child-rearing support and health promotion.

Fukuyama city, in Hiroshima prefecture, confirmed it had received 331 million yen in donations in the year to March 2016. Sending local souvenirs to donors helped “convey the charm of Fukuyama” to supporters, said the city’s information dissemination section.

Recently, the most popular has been a beef set for sukiyaki meals. Previously, bunches of roses were in high demand.

Who loses?

But while the program has been a boon for small towns and cities, some bigger local governments have pointed to the erosion of their tax base as the system redistributes funds from urban areas to rural regions.

Bloomberg reported in January that the system was estimated to cost Tokyo’s Setagaya ward 1.6 billion yen in lost tax revenue in the year to March 2017. A local official suggested that would be enough to build five nursery schools.

Donors reduce their exposure not only to income tax, but also to the residence tax imposed by local authorities.

In April, the central government stepped in to try to curb the excesses of the program. The Internal Affairs and Communications Ministry sent a notice to local governments urging them to cap the value of thank-you gifts at 30% of the donation amount.

Gift cards that could be exchanged for cash were also discouraged.

“For cases that go against the spirit of the furusato nozei system, the ministry will directly and strongly ask the local governments concerned to review their practices,” the internal affairs minister, Sanae Takaichi, said at a press conference announcing the new policy.

Taking stock

Although the ministry’s requests are not legally binding, local governments contacted by Asia Times indicated they were taking them seriously.

Yaizu City planned to cut the value of the gifts to 30% from 50%, the spokesperson said, adding that while some donors might be deterred, the net income gained from each contribution would increase.

“If the municipalities across the country follow this, we predict that although the donation totals will go down, the reserve amount (net income) will not decrease significantly.”

Miyakonojo City, in the southern prefecture of Miyazaki, planned to ensure all gifted goods were worth 30 percent or less from June this year. Its most popular products include beef, pork, chicken, and shochu – a Japanese distilled liquor.

“Since all the items are products of Miyakonojo City, there are concerns about the impact on the local industry,” an official, Kentaro Oshige, said by email. “On the other hand, we think that there are no businesses that must be stopped or reduced as the number of hometown tax payments decreases.”

Miyakonojo City received 510,316 donations worth a total of 7.1 billion yen in the year to December 2016.

Oshige said while furusato nozei was “a greatly appreciated source of funds for regional towns and cities,” Miyakonojo City was making arrangements to ensure it did not rely too heavily on such donations because of uncertainty about the future.

One place that didn’t seem to get the memo is Soo city in Kagoshima Prefecture.

According to a report by Jiji Press in mid May, the city will offer a handmade camper van to each of the first five donors who give 5 million yen or more.

The 658cc Tentmushi model made by Vanshop Mikami normally retails for about 3 million yen, but remember that tax rebate.