Japan’s Hometown Tax Donation Program a boon to local seafood sales

The Hometown Tax Donation Program, or furusato nozei in Japanese, is a tax incentive scheme to support smaller, cash-strapped municipalities in Japan. Launched in 2008, the system allows taxpayers to donate money to local governments in areas where they do not live and in turn receive residence tax cuts. Taxpayers can donate to a city or prefecture or to a cause that they want to support, such as social and environmental programs, or disaster aid. They can also usually receive a thank-you gift, such as wagyu beef, melons, sake, or other premium local specialties. Most of the gifts are food, and especially for Hokkaido, seafood is a leading item. 

The eligible donation amount is based on income and marital status. Except for a JPY 2,000 (USD 18.24, EUR 16.05) payment, the rest of the total donation cost is deducted from the income or resident's tax in the following fiscal year. Thus, the return gift only ends up costing the donor JPY 2,000. This has helped the program grow to nearly JPY 300 billion (USD 2.7 billion, EUR 2.4 billion) in annual donations that are being used to redirect taxes and stimulate local economies.

The gifts are generally delivered two to four weeks after payment is confirmed, though some products are only shipped in certain seasons.

The most popular gifts tilt toward the luxurious. For example, one gift catalog site, “Furumaru,” lists as the most popular seafood item Cavic brand caviar from Kagawa. The required donation amount is JPY 40,000 (USD 364.84, EUR 320.92). The gift is listed as including three 25-gram bottles. As the company regularly lists these for sale on their own website at JPY 13,200 (USD 119, EUR 106) each, a set of three would normally cost more than the donation amount.

The Internal Affairs and Communications Ministry estimates that 13.8 percent of Japan’s 1,788 municipalities were offering gifts whose value exceeded 30 percent of donated amounts, with 9.7 percent saying they did not intend to change such a policy. It has issued a guideline stipulating that gifts offered by local governments must be locally produced and that their value should be below 30 percent of the donation amount. Now the ministry may propose a revision to the law. 

The reason for the guideline is that some towns compete aggressively for the tax benefit by offering ever-more valuable gifts, and it is becoming more of a competitive internet shopping business than a way for migrants to the big cities to support their rural hometowns. In principal, the gift is only meant to show appreciation, not to be a commercial sale.

The town most infamous for exceeding the guidelines in Izumisano in Osaka Prefecture; it offers products from all over the nation, instead of only local items. The government wants each area to only offer its local products. Izumisano attracted the most donations of any town in fiscal 2017: JPY 13.5 billion (USD 123.1 million, EUR 108.3 million). 

Another town that has leaned on seafood to bring in donation dollars is Akkeshi Town in Hokkaido. The town’s Akkeshi Flavor Terminal Conchiglie, near the port that sells souvenirs, and also has a well-known oyster bar, and the town has been offering the restaurant’s furusato nozei gift of30 extra-large Akkeshi "Maruemon" Oysters and one-kilogram Clam Set, which includes an oyster knife, for a donation of JPY 20,000 (USD 182.41, EUR 160.44). The offering third in popularity among seafood items, and the same town also holds the number-three spot with a 1.6 kilogram Boiled and Frozen Hanasaki Crab gift.

A staff member there told SeafoodSource that furusato nozei is a “very important part of our sales.” The firm offers the set through three sites: Furumaru, Amazon, and Yahoo. He said the company hopes people will try its products through the program and then re-buy using other channels, like its own website, but the staff member didn't know if this process was actually taking place. Nonetheless, he said he hopes the program continues and thinks that his product will not have a problem, since it is an actual local product and a concrete object – food – rather than a gift card, as some localities offer. The government does not like towns to offer gift cards because they can be re-sold easily.

Rishiri Town in Hokkaido offers a set of 500 grams of Rishiri Island Sujiko Roe and 180 grams of Salmon Roe in Soy Sauce Marinade as a return gift for a donation of JPY 30,000 (USD 273.63, EUR 240.66). Sujiko is composed of salmon eggs still in the sack. This company only offers the gift through the Furumaru site and the item is eighth on Furumaru’s list of most popular seafood items.

A staff member there told SeafoodSource he would like to see the program maintained, as it is important to sales. Since the value of the gift is kept under one-third of the donation amount, she thinks that the town will be able to continue without any problems from the federal government.

That may be quickly becoming the case. While some Japanese bureaucrats say that the gifts are distorting the purpose of the donations and are just becoming a business, it is a business that has become important to sales of specialty seafood products, and that could give the practice the political protection it needs to survive.