Furusato Nouzei – Hometown tax donations system

Dear readers,

It is a very beautiful day and I really want to go on a hike. However, I think I should post at least one article per day during weekend. Today I would like to talk about Furusato Nouzei , which is a tax transfer system to other municipalities from your habitual residence. In Japan, we have to pay income tax both to the central government and local government. The latter is about 10% of your taxable income. Obviously large cities like Tokyo and Yokohama have advantage over other cities/towns/villages because their population exceeds millions. To ease this discrepancies, the government introduced the Furusato Nouzei in 2008. In Japanese, Furusato means hometown and Nouzei does paying tax. This system allows you to transfer part of your local/central tax obligations to other municipalities including your home town(not mandatory) through donations.  In exchange for donations, you are given gifts from the municipalities to which you donate. For further information, please read the Japan Times article. This tax system works brilliantly well in my observation because there is competition among municipal governments to lure other tax payers so that they offer compelling gifts and tax payers can save money with gifts.  Last year I donated JPY 125,000 ($1,000) to 14 cities and towns. From those municipal governments I received bottles of water, locally brewed sake, beef, locally caught fish, locally harvested rice, locally harvested oranges, assortment of locally harvested vegetables, oil sardines, locally caught snow crab and tuna cans. Essentially my gross tax obligations don’t change. But I received what I listed above for free. I really like Furusato Nouzei. This year I have already donated to two cities including Komagane City and IIde Town.

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