Hometown Tax Research Committee Report
October 09, 2007 (Tuesday)
I have commented on the home town tax a number of times in this column. On October 5, the Hometown Tax Research Committee held a final meeting, completed its report, and submitted it to Hiroya Masuda, Minister of Internal Affairs and Communications.
The essence of the report is that a “home town tax” will provide an opportunity for citizens to think about the importance of home town, and is also expected to promote reform and progress in information disclosure and administration of the regional governments that wish to receive the home town tax payments. In particular, the committee emphasizes that enabling taxpayers, based on their own will, to choose their tax payment recipient would be groundbreaking, and specifically proposed the following to realize the purpose of the home town tax system.
With regards to local resident tax, the conditions for deductions on donations to local governments would be significantly eased, and taxpayers could take up to 10% of their local taxes and deliver it to the region they consider to be home in a donation format. This amount would be deducted from taxes. However, tax deductions would be limited to donations of 5,000 yen or more.
This final proposal holds a number of important meanings.
- The reason for using a donation tax system is that, from the perspective of the local tax benefit principle, taxation rights and etc., there are theoretical problems with paying taxes to a local government where one does not currently reside. Using the donation tax system not only avoids these theoretical and systemic problems, but also essentially produces the same effect within a system that is easy to use and understand.
- It was decided that the definition of “home town” would be decided by the taxpayer. The narrow definition of home town is the place where one was born and/or raised, but in terms of the importance of home town in the hearts of citizens, it could also be where one hopes to live in the future, or a region that is endeavoring to protect nature; in other words, it should be recognized from a broader perspective. Moreover, having to provide proof of one’s home town years later is a technically troublesome task.
- The maximum tax deduction that could be received for the “home town tax” was set at 10% of the local resident tax. This is to minimize inequality between those who donate to their home towns and those who do not, and also to avoid an excessive shift in tax payments from current areas of residence to home towns. This, in turn, helps to meet the demand that “home town and local governments” both receive donations without creating a conflict of interest among local governments.
- The minimum donation to receive a tax deduction was set at 5,000 yen. Establishing the lower limit at 5,000 yen means that actual tax deductions will become lower for taxpayers (donators), but providing tax deductions for extremely small donations would result in excessive administrative expenses. Additionally, there is the danger that measures for tax allocations to local governments to compensate for the shift in tax source would be used improperly. For these reasons a minimum donation was established.
The “home town tax” system was officially proposed based on these various considerations. The content of the proposal has been received relatively well by concerned parties, and after undergoing adjustments by the Government Tax Commission and both the ruling and opposition parties, if possible we would like to see it included in the tax system next fiscal year.
As chair of the Hometown Tax Research Committee, I have participated in four months of intensive work and endeavored to coordinate the flow of discussion. I can now say that it has been a unique and extremely meaningful experience in a long career of involvement with government policy. It is my hope that this landmark proposal will contribute to the progress of the Japanese tax system.