OSAKA –
Osaka High Court on Thursday upheld a lower court ruling that the central government’s decision to cut special tax grants to the city of Izumisano, due to its huge revenues under the furusato nōzei (hometown tax donation) system, was illegal.
Presiding Judge Kenji Maki dismissed an appeal by the central government.
According to the court ruling and other sources, the city in Osaka Prefecture raised about ¥49.8 billion in donations in fiscal 2018, the largest amount among Japan’s local governments under the tax donation program.
The central government later enforced a revised internal affairs ministry ordinance that takes donation revenues into account in the calculation of special tax grants. Accordingly, special grants to Izumisano in fiscal 2019 were reduced 89% from the previous year to about ¥53 million, excluding disaster-related funds.
Izumisano filed a lawsuit in 2020 seeking the nullification of the central government’s decision to reduce its special grants to the city.
In 2022, Osaka District Court backed the city’s claims, finding the decision illegal.
The high court in 2023 overturned the district court’s decision, saying that disputes between administrative entities are not subject to trial, while avoiding a judgment on whether the central government’s decision was legal or illegal.
In February this year, the Supreme Court dismissed the 2023 ruling and sent the case back to the high court, finding that the dispute was over specific rights and obligations and therefore subject to court examination.
Maki said the local tax grants law, which stipulates that the amount of special grants is determined by the typical revenue of local governments, does not consider donations as part of the typical revenue.
The judge said reducing the grants to the city on the grounds that it earned a certain level of donation revenue goes beyond the scope of authority stated by the law and was, therefore, illegal. If donation revenue is to be used as a factor to reduce special tax grants, a decision needs to be made by the legislature from political and policy perspectives, he said.
Izumisano Mayor Hiroyasu Chiyomatsu said that the latest ruling is “significant in terms of rectifying the local tax allocation administration.”
He urged the central government to swiftly withdraw the decision to reduce its grants for the city, without challenging the ruling.
Internal affairs minister Seiichiro Murakami said that the central government will carefully examine the ruling and consider its next move.
The hometown tax donation system allows taxpayers to make donations to local governments of their choice and receive tax breaks in return.
