Posts Tagged ‘Ministry of Internal Affairs’

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.

Play money: Forgotten fate of foreign currency

Monday, June 4th, 2012

Stuff old people bring back from abroad

The magazine Travel Journal recently reported the results of a survey carried out by the Ministry of Internal Affairs among 7,829 travelers after the recent Golden Week holiday. The ministry asked people who had changed yen into foreign currencies how much of that money was left over in cash after they returned to Japan. The average amount of foreign cash remaining among those who responded was the equivalent of ¥38,871. Somehow, the ministry extrapolated this figure to reach the conclusion that, nationwide, there is about ¥1.3 trillion worth of foreign currencies sitting around in people’s dresser drawers or stuck in the back of wardrobes, which is a lot of money.

The survey also found out that the average Japanese traveler going overseas exchanges ¥71,940 on each trip, and spends about 70 percent of that money. The average amount of cash that is stolen from a Japanese robbery victim overseas is ¥65,730 per incident. In 12 percent of the cases, more than ¥100,000 in equivalent cash is stolen from Japanese victims. In 1 percent of these cases the amount is over ¥1 million.

For better or worse, Japanese tourists are famous in foreign countries for carrying a lot of cash, presumably because in Japan merchants still prefer transactions in cash and Japan is a relatively safe country for doing so. It’s one reason why Japanese tourists spend so much in airports. They feel the need to get rid of their foreign cash, even if it’s spent on things they don’t need. Japan Travel also comments that older Japanese people, who tend to travel in tour groups, rarely think about the exchange rate, and especially now with the yen so high may end up exchanging more yen than they really need.

Since this forgotten foreign currency in homes is likely worth less that it was when the exchange was originally made, people may not be so enthusiastic about trading it in for yen, at least not right away. Still, the government must surely be wondering how it can get its hands on it. Travel Journal says the Ministry of Internal Affairs is thinking of launching a “donation” campaign for the money. We can imagine the catch copy: “You can’t spend it here, so why not give it to us?”

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