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Nearly 25% of smaller Japan communities lost money under hometown tax system

The Ministry of Internal Affairs and Communications' hometown tax website

TOKYO -- A Mainichi Shimbun investigation on 1,741 municipalities' income from Japan's hometown tax system in fiscal 2020 has shown that, excluding municipalities in Tokyo and the country's ordinance-designated cities, 23% -- some 394 municipalities -- operated the system at a loss.

    The "hometown tax donation" system allows taxpayers to donate to local governments of their choice in exchange for a reduction from their own local tax bill, and local governments that receive the donations provide gifts in return. The system is based on the idea of revitalizing regional areas, but because communities are competing with one another to obtain donations, contributions are concentrated in areas with popular return gifts, and the income of municipalities where many donors live becomes lower.

    Based on documents released by the Ministry of Internal Affairs and Communications in July, each municipal government's income in fiscal 2020 was collected by deducting lost residential tax income and expenses incurred in preparing hometown tax gifts and in intermediary websites' handling fees from the donated sums received.

    Across Japan, 471 municipal governments were in the red. Broken down by prefecture, six prefectures in the three major city regions accounted for almost half of them: 57 were in Tokyo, 47 in Saitama, 39 in Aichi, 30 in Osaka, 29 in Chiba and 20 in Kanagawa.

    Even when totaling all the municipalities' incomes, Tokyo came out with the largest deficit at 61.3 billion yen (about $539 million), while Kanagawa saw a deficit of 27.1 billion yen (about $238 million), Osaka 16.5 billion yen (some $145 million), and Aichi 13.8 billion yen (some $121 million).

    Among the 33 prefectures in the black, the prefecture that benefitted the most was Hokkaido with a profit of 41.8 billion yen (around $368 million), followed by Kagoshima at 19 billion yen (some $167 million) and Miyazaki at 18.7 billion yen (some $165 million). Of Hokkaido's 179 municipalities, just four were in the red.

    Although it appears the scheme is roughly fulfilling its aims of narrowing the financial discrepancies between cities and regional communities, the top 20 most donated-to municipalities in Japan in fiscal 2020 accounted for 20% of sums contributed. Many municipalities across Japan are operating the system at a loss, with only three prefectures having no municipalities in the red at all. Some 30% of local bodies running the system at a deficit are villages and towns, which operate on a smaller scale than cities.

    The national government covers 75% of residential tax income losses due to hometown tax if a municipal government is classed as an "allocation recipient body" that gets tax allocations for regional areas from the national government to support revenue shortages. The classification of allocation and non-allocation recipients is decided in the summer of the following year, but even if the same allocation and non-allocation classifications from the previous year and the supplementary amounts to revenues were applied, 267 municipalities would still be in the red. Even excluding municipalities in Tokyo and ordinance-designated cities, 201 municipalities would be in the red.

    (Japanese original by Shunsuke Yamashita and Tomokazu Komaki, Tokyo Regional News Department)

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