This week’s episode takes a closer look at how Japan’s hometown tax system is evolving amid new regulations and local adaptations.
A longstanding tradition in Japan, the hometown tax system, which allows taxpayers to donate to regional municipalities in exchange for tax deductions and local gifts, has seen a surge in popularity. This week’s episode delves into how families benefit from the system, the impending policy changes, and how municipalities are adapting to these shifts.
In mid-December, Tokyo’s Kodaira City, the Masuda family — Keido Masuda, his wife, and their two daughters, Rinko and Koko — are eagerly selecting their annual hometown tax return gifts. “Who loves Shine Muscat?” asks Mr Masuda, as his daughters excitedly respond, “Me!” A tax system unique to Japan, hometown tax allows people to donate to regions they don’t live in, in exchange for residential tax deductions as well as select “return gifts” based on their donation amount. This year, annual donations collected have been over 1 trillion yen (S$79.5 million).
The family has turned this process into an annual tradition, carefully choosing from a wide range of gifts such as rice, toilet rolls, and their favourite Shine Muscat grapes. Mr Masuda has donated to three regions, contributing a total of 44,000 yen in which he has exchanged 20,000 yen for rice, 13,000 yen for toilet rolls, and 11,000 yen for grapes.
“Costs of living are on the rise, and of course, my family is also affected,” he explains, “so the hometown tax scheme seems like a good deal to me.” Like many others, Mr Masuda makes use of online portals such as Rakuten Furusato Nozei, which offers reward points for donations. “By using Rakuten for hometown tax, I can use points earned to buy additional items on Rakuten,” he adds. “Everything can be done on Rakuten, which makes it very appealing.”
However, this may be the last year that such a deal exists. The Ministry of Internal Affairs has announced that from October 2025, portal sites offering reward points to solicit donations will be banned. The move has sparked concern among users and businesses. “I hope it doesn’t go away,” says a disappointed Mr Masuda. “I mean, I’m not one to say no to free stuff.” Portal site operators have also voiced their discontent. “It was one of our marketing tools, so honestly, it was a real shock,” says a manager from Furunavi, an online Hometown Tax Return Gift portal.
Municipalities that have relied on the system for substantial revenue are now seeking alternative strategies. Izumisano City in Osaka Prefecture, known for its aggressive hometown tax campaigns, has consistently ranked among the top municipalities, raising over 17.5 billion yen last year. “Every year, the Ministry of Internal Affairs come up with regulations and implement them,” says Hironori Sakagami, Director of the Growth Strategy Office. “They have significantly hampered the initiative.” Izumisano City, however, has a history of adapting. After a legal battle with the government in 2019 over return gift restrictions, the city won a Supreme Court case and reinstated its programme.
Faced with new constraints, Izumisano has launched “Hometown Tax 3.0,” an initiative that connects businesses and local development. This includes using donations to fund new product manufacturing. One example is the Senshu towel factory, which raised 160 million yen in hometown tax contributions to renovate its facilities and create a visitor-friendly experience. In return, the donors received its products once the towel factory was up and running again. “We’re proud of receiving the most hometown tax in Japan because it proves we are the most beloved town in Japan,” says Sakagami. “No matter what changes the Ministry of Internal Affairs make, Izumisano City will not give up.”
Meanwhile, Fujiyoshida City in Yamanashi Prefecture, located near Mount Fuji, has also embraced innovative approaches. With an annual donation exceeding 8.8 billion yen, it ranks 14th nationwide. The city has leveraged hometown tax funds for infrastructure projects, including a new observation deck offering panoramic views of Mount Fuji. Rakuten’s hometown tax division manager, Takashi Kamikawa, has been instrumental in identifying products that can attract more donors. He has been working closely with local businesses to create new offerings, such as coffee sticks and down duvets, to enhance the city’s gift selection.
As the ban on reward points looms, Rakuten is spearheading an alternative model: promoting hometown tax return gifts through its e-commerce platform. Data analysis has revealed that consumers who receive return gifts are likely to purchase additional items from the same region. By allowing Fujiyoshida’s products to be sold directly on Rakuten Ichiba, the company hopes to sustain sales beyond the tax system.
In urban areas, Chiyoda Ward in Tokyo has begun using the hometown tax system, the first time since the system was enacted 16 years ago, to counteract the loss of revenue to rural municipalities. Over the past decade, tax outflows out of the ward have exceeded 10 billion yen. “We can’t allow any further reductions in revenue,” says Chiyoda Ward Mayor Takaaki Higuchi. In response, the district has partnered with Furunavi to offer return gifts that highlight Chiyoda’s unique culture, such as Edo-era products and its renowned curry scene.
Mr Hideki Kato, an executive at Furunavi, sees great potential in leveraging the local food culture. “When you think of Jinbocho, you think of Kanda. And Kanda is known for its curry,” he says. His team has successfully enrolled top curry restaurants into the programme, enabling donors to receive meal vouchers instead of physical goods. “If they get meat delivered, that’s it. But this way, they will visit us,” says Hiroshi Futaki, owner of Akihabara Caligari, a popular curry restaurant. “I think it’s a huge benefit.”
As rule changes approach, some are questioning the future of the hometown tax system. The long-established portal Furusato Choice, which doesn’t offer any reward points, has taken a different stance, urging people to reconsider the spirit of the programme. At a recent exhibition in Yokohama, the company displayed messages urging visitors to “think about hometown tax.” “If the system is misused, it can ruin its original intent,” says Rie Nagata from Furusato Choice.
Despite differing perspectives, one thing is clear: municipalities and businesses are adapting to keep the system viable. Whether through local development projects, innovative return gifts, or new sales channels, the hometown tax continues to evolve. As Fujiyoshida’s Kamikawa puts it, “We’re not just collecting donations; we’re actually seeing results, which is very rewarding.”