The Supreme Court gave a decision June 30; it is violation of law for the state’s government to have excluded the city of Izumi-sano, Osaka Prefecture, from the scheme of hometown tax contribution. The central government policy had come from the over-heated competitions among local governments surrounding the tax system, in which donors can get gifts and enjoy tax alleviation. The Court says that it is breach of the law that the government eliminated the city, justifying its position on the ground of practices that prevailed before the revision.

SCRAP THE TAX AND INCREASE SUBIDIES TO LOCAL GOVERNMENTS

The scheme of hometown tax donation allows taxpayers to lessen their burden: for instance, if you contribute 100 thousand Yen to any of the municipalities you like in the country, you can enjoy a tax reduction on a portion of 98 thousand Yen, though you pay \2,000. If a high income taxpayer donates one million Yen to a municipality under this program, he/she can save tax payment on the portion of 998 thousand Yen. Thus the city where the donor resides will lose revenue. Meanwhile, a recipient local authority provides various souvenirs so as to magnetize contributors, which triggered harsh competitions.

Government restricted competitions

The state government revised the Local Taxation Act in March, 2019, to curb catching campaigns of municipalities, including gifting expensive products. From June the same year the amended law came into operation and every local government introduced the ‘designated system’ in which gifts should be local, original goods that are less than 30% of the amount of donation in money terms.

In addition, the Ministry of Internal Affairs and Communications issued a notice that it would look into municipalities’ routines during a period of six months beginning from November 2018 whether they had obtained donations, deviating the regulations. In May next year four cities, including the city of Izumi-sano, were removed from the scheme.

No obligation to obey government’s announcement, but…

The Izumi-sano city authority asked in June the ‘state-municipality conflict coordination commission’ for examination. The commission advised the Ministry to review the decision, saying that it may infringe the revised Local Taxation Acts. The ministry, however, did not respect the commission’s guidance and the city authority sued to the Osaka High Court in November, accusing the ministry. The high court rejected the city’s legal action in January the next year. Then the Izumi-sano City appealed to the highest court in February, which recently gave the state’s government a verdict to withdraw its policy. The court’s ruling says that municipalities are not required to obey the state’s announcement which lacks legal foundation. The Supreme Court’s judgment itself is right, but the tax system itself has shortcomings as one of the judges complained that the souvenirs given by Izumi-sano City exceed a usual practice.

Don’t compete in catching donors

The Ministry announced August 5 ‘investigation results on the current situation of Hometown Tax Donation Program’ in the fiscal 2019. The total sum of donations counts 487.5 billion Yen (512.7 billion Yen in the fiscal 2018), which is lower than the previous year’s figure after seven years of absence. That seems an outcome of the restriction imposed on gifting expensive items. Expenditure was calculated as 227.5 billion Yen to campaign the program in order to invite donors, which occupies 46.7%. Thus the net income of contributions is estimated as only a half.

The biggest winner of donors was the city of Izumi-sano, which collected 18.5 billion Yen (49.7 billion Yen in the previous fiscal). Municipalities which reduced tax revenues are found in the state-designated large cities and special districts of metropolitan cities. The biggest reduction of tax revenue is seen in Yokohama City, which recorded 14.5 billion Yen. As for the special districts, the Setagaya Ward of Tokyo led by Mayor Hosaka decreased by 4.9 billion yen. Some smaller local governments depend on this tax program, but scrambles for tax money should be halted.

An option is sales of local specialties by way of crowd-funding to gain revenue, being a usual contribution. Frankly speaking, it is necessary to amend the tax system, for instance, to increase the government’s allocation to distribute to municipalities.

August 25, 2020