Posts Tagged ‘Liberal Democratic Party’

Local municipalities vie for your ‘hometown tax’

Monday, August 11th, 2014

Screen shot of web portal site for products being offered as gifts in exchange for "hometown tax" donations

Screen shot of web portal site for products being offered as gifts in exchange for “hometown tax” donations

The ruling Liberal Democratic Party is already thinking about next year’s local government elections and in order to help their candidates is studying a possible increase in the maximum tax deduction afforded to people who contribute “hometown taxes” (furusato nozei), a system that was implemented in 2008 to help regional municipalities struggling with budget shortfalls.

Because an increasing portion of the population is concentrated in large metropolitan areas, local government tax bases are eroding. The hometown tax diverts some of the money people pay to big city governments to these smaller municipalities in the form of donations. In order to make the system attractive to taxpayers, the central government offered deductions not only for national income taxes, but also for local income taxes.

Taxpayers can donate funds to a local government that is different from the one where they live, and despite the name of the system it doesn’t have to be their hometown. It can be any locality. Say you live in Tokyo but you want to help out a town in Fukushima devastated in the disaster of 2011, something that many people have used the furusato nozei to do. If you donate 20,000 to that town in Fukushima through the hometown tax system you can get a deduction off your national tax bill this year, and since local income taxes are based on national income taxes, this deduction, as well as a separate deduction for charitable donations, is reflected in your local tax bill the following year, which will be lower that it would have been otherwise as a result. So for the ¥20,000 donation, the taxpayer ends up with an ¥18,000 tax savings (¥20,000 minus a ¥2,000 handling fee).

Obviously, small local governments like the system very much while larger city or prefectural governments, such as Tokyo’s, don’t, because they lose out on those diverted tax revenues. In 2013, according to the Ministry of Internal Affairs, 22,000 Tokyo taxpayers contributed hometown taxes to other municipalities and it cost the Tokyo Metropolitan Government ¥500 million. By Tokyo’s budget standards that’s a drop in the bucket, but if the LDP raises the maximum amount allowed for the deduction, it could go up significantly, and, it should be noted, almost no one from other municipalities donates money to the Tokyo Metropolitan Government.

But there’s another factor that may drain revenues from big city governments, and that’s competition for furusato nozei contributions. Last month, in line with the aforementioned 2015 local elections, Prime Minister Shinzo Abe visited Tottori Prefecture, which received the highest amount of hometown tax donations in 2013. What makes Tottori, one of the smallest prefectures in the country, so popular? Two answers: beer and crab. In fact, Abe, a teetotaler, made a point of dropping by a local craft brewery because the factory’s product is sent by the prefecture to donors as a thank-you gift. Or, if you donate a certain amount you can receive crab from the prefecture instead.

In this way, donors get multiple effectiveness from their donation: tax cuts (two, in fact) and a free gift that conceivably could be worth more than the donation. Local governments and businesses also receive multiple benefits: they get diverted tax revenues as well as valuable PR for their local products. Now, hundreds of local governments are competing for hometown tax donations with attractive gifts, even if the donations are only a few thousand yen. Consequently, the number of donors and the amounts donated are rising yearly.

According the Ministry of Internal Affairs, in 2009 33,000 people received the hometown tax deduction on their returns, accounting for ¥7.3 billion in donations. Last year the number of deductions was more than 106,000, comprising ¥13 billion in donations.

Tokyo Governor Yoichi Masuzoe has already weighed in on the proposed limit increase, saying that furusato nozei is a “gimmick” for trying to correct an imbalance in local finances but its real result will be to stifle economic progress. The Tokyo tax bureau has complained about the gift system, seemingly because it removes the altruistic component — giving because you care — from the idea of “donations,” and, sensitive to the charge, the Ministry of Internal Affairs has cautioned local governments to be more “responsible” in offering gifts in return for donations. But that may just be lip service. Abe’s support at the local level is supposedly deteriorating, so he needs to do something to bring it back up even a little bit.

Candidate deposit requirement guarantees same faces on the ballot

Friday, October 26th, 2012

Ever wonder why so many Japanese politicians are old and that the only new faces tend to be their progeny? There are a number of cultural explanations for this phenomenon, but there’s also a financial one. It’s called the kyotakukin, or deposit, system.

The candidacy … paid in full (or How much is that politician in the window)

To run for any office in Japan, whether national or local, a person must deposit a certain amount of cash with the relevant election authorities. If the person wins, the deposit will be returned, but if the candidate loses and in the process fails to garner a certain percentage of the votes cast, he or she forfeits the money. The amounts required are high, and for national office almost prohibitively so. Candidates for prefectural and municipal office need to pay deposits of between ¥300,000 and ¥600,000, depending on the size of the constituency. However, candidates for the Lower House of the Diet have to deposit ¥3 million for a constituency seat and ¥6 million for a proportional seat. Constituency seats are decided for an electoral district simply by the number of votes cast in the district. Proportional seats are decided by the portion of votes a particular party receives on the proportional part of the ballot.

Many candidates, in order to guarantee success, run in both contests, because while they may lose in the constituency race, their party may gain a large enough portion of votes to allow them to be swept into office on the proportional ticket. In that case they have to pay deposits for both seats, meaning ¥9 million. If a constituency candidate doesn’t garner at least 10 percent of the total votes, he or she has to forfeit the deposit.

A few other countries have candidate deposit systems, but Japan’s is the most expensive by far. According to a recent article in the Tokyo Shimbun, the United Kingdom only requires the equivalent of ¥62,000 to run for national office, Canada ¥80,000, and Korea about ¥1 million, the highest after Japan. Most democracies either never had the system or have done away with it. Historically, its purpose was always obvious: to limit the number of candidates and make sure that those with financial power also held political power.

Continue reading about election campaign deposits →

Tobacco farmers lost but not forgotten in tax rumble

Monday, January 2nd, 2012

Smoke 'em if you got 'em: JT HQ in Toranomon, Tokyo

As every smoker in Japan knows, the cigarette tax was raised in the fall of 2010. With ¥3.5 added to each cigarette, it means a pack suddenly cost at least ¥70 more, and as a result sales have dropped by about 20 percent. So-called sin taxes are double-barrelled: They have a behavior modification purpose of discouraging users from over-indulging, and they’re an easy political sell since the consumers (and maker/providers) usually aren’t considered a sympathetic or powerful constituency by the general public. Consequently, the government is thinking of adding another ¥2 per cigarette tax levy to help pay for reconstruction.

The suggestion has been tabled for the time being, though it will likely be revived. The main reason for the postponement isn’t so much Japan Tobacco, which has a monopoly on tobacco sales in Japan, but rather the farmers who supply JT. There are approximately 10,000 households that make a living from growing tobacco, and about 40 percent have said that they plan to quit since they see no future in the crop. The presumed reason is the tax and the trend for quitting, but many farmers say they are getting out of tobacco because JT asked them to. Since JT is obliged to buy all their product, these farmers no longer have a guaranteed future, and with the Trans-Pacific Partnership possibly looming on the horizon, there’s even less of an incentive to stick it out.

Tobacco, like salt and rice, used to be a government monopoly. That changed in 1985 when the monopolies were abolished and Japan Tobacco was established. Despite the change in nomenclature, JT pretty much continued to operate as a monopoly, since it had to buy all the tobacco produced and controlled all sales of cigarettes. JT determined the price of tobacco before each growing season, meaning there was never a market for the crop. This worked fine while sales were strong, but after they peaked in the mid-90s revenues steadily decreased. Starting in 2004, JT solicited tobacco farmers to retire, and about 20 percent did exactly that. The amount of farmland dedicated to tobacco decreased by about 10 percent. Last year, JT asked more farmers to quit the game, and the decrease in farmland was 30 percent.

Continue reading about a possible hike in tobacco tax →

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