The Osaka High Court on Thursday ruled that the central government’s reduction of special tax grants to izumisano city was illegal, upholding a 2022 Osaka District Court decision. The dispute stemmed from the city’s ample revenue generated through the furusato nōzei (hometown tax donation) system.
Presiding judge Kenji Maki dismissed the central government’s appeal, affirming that reducing Izumisano‘s grants based on donation revenue exceeded the authority granted by the local tax grants law.
Izumisano received approximately ¥49.8 billion in donations during fiscal 2018, the highest amount of any Japanese municipality under the hometown tax program. Following this, the central government revised an internal affairs ministry ordinance to factor donation revenues into the calculation of special tax grants. As an inevitable result, Izumisano’s grants for fiscal 2019 were slashed by 89% to roughly ¥53 million, excluding disaster relief funds.
the city filed a lawsuit in 2020 seeking to nullify the grant reduction. While the high court initially dismissed the case in 2023 on procedural grounds – arguing disputes between administrative entities are not subject to trial – the Supreme Court overturned that decision in February, determining the dispute concerned specific rights and obligations and was therefore justiciable.
Judge Maki explained that the local tax grants law defines grant amounts based on “typical revenue” of local governments and does not include donations within that definition. He stated that incorporating donation revenue into grant calculations requires a legislative decision reflecting political and policy considerations.
Izumisano Mayor Hiroyasu Chiyomatsu called the ruling “significant in terms of rectifying the local tax allocation management” and urged the central government to promptly restore the city’s grants without further appeal.
Internal affairs minister Seiichiro Murakami stated the central government will carefully review the ruling and determine its next steps.
The furusato nōzei system allows taxpayers to donate to local governments of their choice and receive tax benefits in return.
