The name furusato nozei can make it sound as though people are paying taxes to their hometown. In reality, it is a system that allows people to donate money to a local government of their choice. It does not have to be the place where they were born or once lived. Someone in Hokkaido can donate to a local government in Kyushu, or even to a place they have never visited.
Within a certain limit, the portion of a donation exceeding 2,000 yen can be deducted from income tax and resident tax. How much a person can donate while keeping their effective out-of-pocket cost at 2,000 yen depends on factors such as income and family circumstances. People therefore usually begin by checking roughly how much they can donate within their deduction limit.
One major reason furusato nozei has become so familiar in Japan is the system of thank-you gifts offered by local governments. These can include meat, fish, rice, fruit, alcohol, household goods, traditional crafts, and many other items. The gifts vary depending on the donation amount, and many people browse dedicated websites to decide what they would like to receive.
The system is intended in part to support local communities, but the way many people actually use it feels much closer to everyday shopping. They may use the previous year’s income as a reference to estimate what they are likely to earn this year and then ask, “How much can I donate this year?” From there, they browse the available gifts and compare the donation amounts: “If I donate around 30,000 yen, I can get this much wagyu beef,” or “A 10,000-yen donation gets me that many onions.” They may choose between meat, fruit, rice, or household goods. For many people, comparing and choosing the gifts is part of the enjoyment.
As the gifts became more popular, however, competition between local governments also intensified. Some tried to attract more donations by offering increasingly appealing gifts, raising concerns that the system was drifting away from its original purpose. Rules were therefore introduced limiting the procurement cost of gifts, in principle, to no more than 30 percent of the donation amount and requiring them to meet local-product standards. Local governments that fail to follow the rules can lose their designation under the furusato nozei system. In other words, the system may feel somewhat like shopping, but there are limits on how lavish the gifts can become.
Even so, it is not unusual for people to choose where to donate because of the gift they want rather than because of any particular connection to the place. Of course, some people use the system to support an area they care about or a community recovering from a disaster. But despite the word furusato, meaning “hometown,” there is often no personal connection at all between the donor and the local government receiving the money.
Employees and others who meet certain conditions can also use the One-Stop Special Exception if they donate to no more than five local governments, allowing them to receive the deduction without filing an income tax return for those donations.
So furusato nozei is not simply a special tax paid to one’s hometown. It combines donations to local governments with tax deductions and thank-you gifts, and for many people, even the process of browsing the options and asking, “What should I choose within this year’s limit?” has become part of the experience.
