TOKYO (Kyodo) -- The Japanese government said Tuesday it will drastically rework the "hometown tax" scheme originally introduced to ease the disparity in tax revenues between urban and rural areas by curbing extravagant gift incentives used to attract tax-deductible donations.
The program, launched in 2008, allows taxpayers to donate to their hometowns or other municipalities of their choice and receive tax cuts. But it has led to fierce competition among local governments to lure donations with expensive gifts such as vouchers and personal computers.
There have been concerns that only financially viable municipalities will be able to lure donors, which would be contrary to the aim of the program -- alleviating tax revenue disparities.
Internal Affairs and Communications Minister Seiko Noda told a press conference on Tuesday that the government aims to revise the law on local tax to limit gifts to those produced locally and keep their value below 30 percent of donations.
The rework involves excluding from the scheme local governments that do not abide by the rule, making it impossible for donors to such municipalities to receive tax cuts.
After gaining approval from the ruling parties, the government plans to submit a bill to the ordinary Diet session next year to put it into force in April.
Under the hometown tax payment scheme, donors see the amount of their donations minus 2,000 yen ($18) deducted from their income and residence tax payments up to a certain amount. That means donors gain financially if they receive any item with a cash value of more than 2,000 yen.
Despite the internal affairs ministry's calls to stop offering expensive gifts or items not produced locally, some local governments have not complied, gaining an unfair advantage.
"If these outliers are allowed to continue as is, unfortunately the whole scheme could be undermined," Noda warned.
According to the ministry's survey released Tuesday, 13.8 percent of Japan's 1,788 municipalities were offering gifts whose values exceeded 30 percent of donations as of Sept. 1, and 9.7 percent said they have no intention of changing their practices by the end of October.
The number of municipalities providing gifts such as branded beef and wine that were not produced locally stood at 190. Some local governments said they do not have local products that could be sent as gifts.