TOKYO (Kyodo) -- The Japanese government is considering reworking the "hometown tax," a system that allows taxpayers who typically live in urban areas to make donations to rural areas in exchange for tax credit, officials with knowledge of the plans said Wednesday.
The system was implemented in 2008 as a way to redistribute tax income to cash-strapped municipalities. But it has led to fierce competition for donations and attempts to attract taxpayers with sometimes extravagant gifts.
According to the officials, the Ministry of Internal Affairs and Communications may exclude from the system municipalities that offer expensive gifts.
The ministry last year called on local governments to keep the value of gifts below 30 percent of donations, and this April asked them not to offer gifts that are not produced locally. While most have complied, some have not, giving them an unfair advantage.
According to a government survey, about 80 municipalities collected more than 1 billion yen ($9 million) in donations in fiscal 2017. Of them, 12 municipalities have said they do not plan to change their gifting practices.
The ministry is in talks with these municipalities and is close to reaching a final decision on the issue, the officials said.
In addition to the gifts -- often high-end meat or fruits -- taxpayers are incentivized to participate in the system by being given a rebate on that year's income tax and a deduction on the following fiscal year's residence tax.