Onions and innovation: Supporting local communities with Japan’s hometown tax program

When life gives you lemons, you make lemonade. And when life in rural Japan gives you 400 tons of unharvested onions, well, you use those onions to help fund your cash-strapped local municipality.

Such is the concept behind Japan’s innovative Furusato Nozei (“hometown tax”) program, which allows taxpayers to make donations to any participating municipality in the country — often in return for a small token of appreciation in the form of local produce. The donated amount is then deducted from the taxpayer’s annual local tax bill. The city dweller gets a taste of the countryside and a small town gets much-needed tax revenue.

What makes hometown tax unique

Like many nations with advanced economies, Japan is highly urbanized. In fact, almost 92% of Japan’s population now lives in cities. Over the span of decades, this urban migration has resulted in a familiar pattern: As young people move to urban areas and start their careers, their tax contributions go to their adopted urban homes, leaving the countryside with an aging infrastructure and population — many of whom are nontaxable pensioners.

Introduced in 2008, hometown tax is squarely aimed at supporting Japan’s shrinking small towns, and supplement their declining public coffers.

On the surface, this scheme doesn’t appear to be all that different from the tax-deductible donation programs employed in many nations around the world. But there are two key factors that make Japan’s hometown tax program unique: one, taxpayers don’t need to donate to their actual hometown — any participating town will do, and, two, donations are often acknowledged with a special gift of appreciation. So, depending on the amount donated, taxpayers can expect to receive a return gift of a bottle of locally fermented Japanese sake, or Wagyu steak fillets, or even a bag of onions.

Special relief for onion farmers

Speaking of onions, a heartwarming hometown tax story recently grabbed headlines in Japan. Due to restrictions put in place to help prevent the spread of COVID-19, farmers around Japan who rely on the restaurant industry have been particularly affected. Onion farmers in Okayama Prefecture, which lies midway between Hiroshima and Osaka along Japan’s Inland Sea, had already discarded 180 tons of onions by late May. Keen to address this issue, town officials and onion farmers in Okayama’s Kasaoka City worked together to appeal directly to taxpayers through the Hometown Tax program. They shared images of a field with 400 tons of unharvested onions that were about to go to waste and an impassioned message aimed at saving their onions from being destroyed. They offered to send gift bags with 7.5 kg of onions to those making qualifying donations to Kasaoka City through the program. The message and related national media coverage resulted in over 10,000 applications being submitted for their local onions.

As sales were severely affected by the impact of COVID-19, onion farmers in Okayama’s Kasaoka City appealed directly to taxpayers nationwide through the Furusato Nozei "Hometown Tax" program.
As sales were severely affected by the impact of COVID-19, onion farmers in Okayama’s Kasaoka City appealed directly to taxpayers nationwide through the Furusato Nozei “Hometown Tax” program.

A marketplace for tax donations and gifts

Visitors to Rakuten Ichiba’s hometown tax marketplace can discover the benefits of making donations to one of over 974 municipalities currently participating in the program, including Kasaoka City. Many first-time visitors to the site are attracted by positive word-of-mouth reviews and are pleasantly surprised to discover the diversity of local goods on offer.

Since introduction, the nationwide tax program continues to grow in popularity, achieving nearly 500 billion JPY (around $4.7 billion USD) in revenue for local governments in 2019. And while the program continues to evolve, its proponents argue that the potential upside of revitalizing stagnant rural communities is an important investment in the country’s future.

Hometown tax alone may not be the answer to rural Japan’s 21st century challenges, but along with other innovative government-supported initiatives, such as a drone highway designed to service remote communities, it’s an outside-the-box solution for supporting small town residents – and connecting city dwellers and regional communities along the way.

It’s enough to put tears in your eyes. Or, maybe that’s just someone cutting onions?

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