Japan's Donation Tax Program Delivers Fancy Almost-Free Gifts

Are you in the market for some tea that is green? Peaches, perhaps? Specialty rice painstakingly homegrown in a small village in Japan? You are in luck, as all you have to do is pay your residence and income tax for the year, and these gifts can be yours for practically free! It’s hard to believe there is actually a program like this, but Japan’s relatively new gift/tax or “Furusato Nouzei” program promises a unique way for residents to pay a portion of their taxes.

What is the gift/tax program?
The gift/tax program was started in 2008 as a way to boost the economy of smaller towns in Japan. As many Japanese are aware, the migration of young people from their pint-sized hometowns to metropolitan cities like Tokyo and Osaka puts a growing economic burden on small towns and villages across Japan. As the jobs and money move to larger cities, these small towns encounter trouble staying afloat.

This is where the gift/tax program comes into play. Essentially, the idea is that instead of paying one’s residence and income taxes directly, people can now choose which city a portion of their tax money goes to. The program works like this:
* Taxpayers make a “donation” to the town or village of their choice. Although the name “furusato nouzei” translates to “hometown tax,” the donation does not necessarily have to be to one’s hometown. People can choose any city they would like to donate to, which works out well for foreign residents like me since my hometown sure ain't in Japan.
* Taxpayers can then deduct this donation from their taxes (up to 20% of your residence and income taxes, as of 2015). The deduction is large and based on income, but most of the time, it is almost enough to offset the cost of the donation entirely.

When the program began small towns started advertising their products and services as a way to compete for donations from citizens. They quickly learned the best way to do this was to offer a small gift to people who donated to their town. The gift is usually a “meibutsu,”  the Japanese term for a famous local specialty item. Gifts usually include things like fruit, tea, and rice; but can range to expensive trips, discounts for restaurants, amusement park tickets, and bicycles. The more you donate, the more luxurious and more expensive these gifts become.

However, it's important to first calculate your maximum allowed tax deduction, as this determines how large a donation you can make and how extravagant a gift you can receive. For example, a single person making 4 million yen per year could donate 43,000 yen and get a tax deduction of 41,000 yen. For that size of a donation, you can receive gifts like fresh honey, discounts on bungee-jumping experiences, or even high quality sake. Almost any gift you choose within your "bracket" will be worth the 2000 yen you are ultimately paying when the donation is subtracted from your yearly tax burden.

How do I know which gifts I will receive?
The official Furusato Nouzei website (http://www.furusato-tax.jp/) is set up more like a shopping catalog, and resembles Rakuten more than it does a tax website. On the site you can browse by city, ranking, category, or even search for the particular gift you would like to receive. It truly mimics an online shopping experience.

The key difference you'll notice is that the products are priced way over market price. This is because the price includes the donation, streamlining the whole process. A 35,000 yen bicycle might cost 70,000 yen, but 68,000 yen can be deducted from your taxes. After the dust settles, you paid 2000 yen for that 35,000 yen bike. Nice.

How do I know how much I can donate?
Donation limits are based on various factors such as age, income, family size, etc. The official gift/tax website features a donation calculator that assists in determining the maximum amount you're allowed to donate.
* Go here: http://www.furusato-tax.jp/example.html
* You'll see three methods to calculate the donation limit with each subsequent method providing enhanced accuracy:
1) A "rough" calculator--a collection of tables that list yearly income besides the according donation/tax deduction limits: http://www.furusato-tax.jp/example.html#rough-indication-table
2) An online donation limit calculator that allows you to enter more detailed information, such as family size, age, and other expenses: http://www.furusato-tax.jp/example.html#simulation. The calculator is even downloadable as an Excel spreadsheet for the verily hardcore "salary-dude/dudette" types.
3) Lastly, if that isn't enough, they urge you to contact a tax counselor to make sure you're donating the correct amount to receive the best tax deductions. You'll see the contact information at the top at "STEP 3."

Even more information can be found here: http://www.soumu.go.jp/main_sosiki/jichi_zeisei/czaisei/czaisei_seido/furusato/mechanism/

Things to keep in mind
The gift/tax program is only helping you pay a portion of your taxes. You can only use the program to pay up to 20% of your residence and income tax per year. Please plan accordingly, as this program does not cover all your taxes for the year.

Once you pay your donation and receive your gift, make sure to fill out the municipal and income tax adjustment form for the year indicating your donation and deductions.  Donations can be made all year from January 1st to December 31st and will be counted for the following year’s municipal and income tax. More information on the tax forms and how to file can be found on the National Tax Agency website: https://www.nta.go.jp/

Another thing to keep in mind is that some towns don’t offer lavish gifts but still need donations. Some cities like Nagoya don’t offer any gift at all, but instead list the different causes you can donate to. The list includes things like health care, education, and cultural promotion activities. So other than using the program to gain gifts when paying your taxes, there is also the option of knowing exactly where your tax yen will be spent. This is one of the best parts of the program, as it really puts into perspective the things you can change with your tax payment.

Lastly, this program might seem daunting to you as a foreign resident, especially if your Japanese isn't at a level to read all the tax jargon that fills the website. If you would like to participate in the program, make sure that you understand where your money is going and enlist help if you need it (Japanese friend, spouse, etc.). Some companies can even help you with filing taxes and will make sure you receive the deductions from participating in the gift/tax program.

What does the future of the program look like?
Going forward, Prime Minister Abe has been vocal about his wishes to continue expanding the program. There have been updates to the amount you can donate as recently as this year. Japanese officials are not specific about how the program will expand or what implications it has for the future of small towns, so Japanese citizens and foreign residents can only hope that this program will turn out to be a real change in the way they pay taxes in Japan. In other words, getting a 40,000 yen electric guitar for 2000 yen is pretty sweet, dude.