Hometown Tax System (Furusato-nozei) and Tax Reform for FY2015
Hometown tax system (furusato-nozei in Japanese) is a topic often picked up in the mass-media. You might already have used this system, or you may think about trying it from now. In this column, we will mention basic ideas of “hometown tax system” and some revisions by the tax reform for FY2015.
Hometown tax system was legislated at the first Abe cabinet in 2008. It is aimed for revitalizing local economies through donation. The system is not actually paying “tax”, but you donate to prefectures or municipalities that you want to help out.
From tax point of view, you are eligible for tax deductions from your income and inhabitant tax by filing a tax return. Another characteristic is to receive local gifts in return for donation from local governments.
3. Main concepts
According to the website of the Ministry of Internal Affairs and Communications, three basic concepts of hometown tax system are indicated as follows:
① People can select prefectures or municipalities that they want to support. In some local governments, contributors can designate how to use their donations, which enhances people’s consciousness of paying taxes as sources of organizing local governments.
② People do not necessarily have to select their hometowns, but they can pick any local village, town, or city that they want to cheer up. Through donation, people get interested in the regions and encourage local cultures and environments.
③ Each local government tries to compete to raise more donations, which leads to revitalization of local economy.
4. Recent trend
Hometown tax system has been popular among people since its launch in 2008. According to statistics by the Ministry of Internal Affairs and Communications, the number of donors was approximately 30,000 in FY2009, and increased up to about 130,000 in 2014. The amount of donation reached about 14.2 billion yen in FY2014 from about 7.3 billion yen in FY2009.
The popularity is not limited to tax credits from income tax and inhabitant tax, but various regional gifts in return for donation are also attractive. Additionally, the tax reform for FY2015 makes the system more user-friendly, and it is expected to increase more public attention.
5. Local gifts
As mentioned above, one of the attractions of hometown tax system is to receive local gifts in exchange for donation. Specifically, you can get locally produced seafood or fruit. Some municipalities offer special services or discount coupons of using some faculties in their regions. Each local government tries to advertise regional products or cultures to donors by providing such gifts and come up with various ideas for getting more attention.
On the other hand, some point out that some local governments offer luxurious or rare presents which are worth beyond the amount of donations. They should consider the original concepts of hometown tax and be more careful of offering gifts for donations.
6. Tax deductions
The amount of donations more than 2,000 yen is principally eligible for full tax deduction and calculated as follows:
① Individual income tax
(Total amount of donations (Note1)–2,000 yen) x income tax rate (Note2)
② Individual inhabitant tax (basic part)
(Total amount of donations (Note3) – 2,000 yen) x 10%
③ Individual inhabitant tax (special part)
(Total amount of donations – 2,000 yen) x (100%–10% (basic part) – income tax rate (Note2))
→The rest amount that could not be deducted in ① and ② is fully deducted from ③ (up to 20% of income rate portion of inhabitant tax)(Note 4)
(Note1) The amount of donations subject to deduction under individual income tax is up to 40% of total income.
(Note2) Special income tax for reconstruction is added from FY2015 to FY2038.
(Note3) The amount of donations subject to deduction under individual inhabitant tax (basic part) is up to 30% of total income.
(Note4) Please refer to 7①.
7. Tax reform for FY2015
Under the tax reform for FY2015, the upper limit of tax deduction of inhabitant tax was doubled, and a new system enabling tax deduction without filing a tax return was introduced.
① The upper limit of tax deduction
From January 1, 2015, the special part of tax deduction of inhabitant tax has been increased from 10% to 20%. The special part is only applied for hometown tax payment and deducted together with the basic part. Please note that the upper limit of deduction also differs depending on your family membership or application of housing-loan tax credit.
② “Hometown Tax Payment One-Stop Special Provision System”
“Hometown Tax Payment One-Stop Special Provision System” is applied for donations made on and after April 1, 2015. If you are a salaried employee and not required to file a tax return, you can take tax deduction for donations even if you do not file a tax return by applying this system. In this system, tax deduction does not stem from income tax, but the whole deduction is allowed in inhabitant tax of the following year. Please note that you have to limit the number of municipalities you want to donate to five or less, and submit an “Application of Hometown Tax Payment One-Stop Special Provision System” to the municipalities.
In this column, we have provided information about hometown tax system. As mentioned above, the system is partly criticized because it tends to gain popularity from merits of tax cut or financial benefits from gorgeous gifts, which deviates from the original concepts. Still, with the help of the tax reform, the system will get more public attention and expect more donors in the future. It would be recommended to utilize the system, considering not only special gifts but purposes of your donations and other concepts. If you have any further questions, please feel free to contact us.
● The Ministry of Internal Affairs and Communications -Furusat-nozei Portable Site http://www.soumu.go.jp/main_sosiki/jichi_zeisei/czaisei/czaisei_seido/080430_2_kojin.html
● The Ministry of Internal Affairs and Communications ”Tax Deduction for Donation under Individual Inhabitant Tax such as Furusato-nozei”