"Hometown love donation" marks its third year of implementation this year. This system allows individuals to receive benefits such as tax credits when they donate to their hometown. The government is considering expanding eligibility for hometown love donations to corporations. The aim is to increase the scale of donations and use them for regional development. However, it has been reported that there are concerns about side effects.

Promotion event for the hometown love donation system in Jinju. /Courtesy of Jinju City

◇ Hometown love donation, Japan 10 trillion won VS Korea 880 million won

Hometown love donations were introduced in 2023. The system allows individuals to donate up to 20 million won annually to local governments where they do not currently reside. Individuals can receive a full refund for donations up to 100,000 won as part of the tax credit, while a 16.5% refund applies to amounts over that. Additionally, they can receive local specialty products or other rewards from the relevant local government within the limit of 30% of their donation.

So far, the achievements of hometown love donations have grown each year. Last year, local governments nationwide received 87.93 billion won through hometown love donations. This represents a 35% increase from the first year of implementation (65.1 billion won). Furthermore, by the end of the first quarter of this year, 18.35 billion won had been received, which is double the amount from the same period last year.

Initially, hometown love donations were implemented earlier in Japan with a similar system. This year marks the 18th year of Japan's "hometown tax" (ふるさと納税), with the amount raised surpassing 1 trillion yen (about 10 trillion won) as of 2023. This is more than 100 times the achievements in Korea.

Analysts suggest that the ability of both individuals and corporations to participate in Japan's hometown love donations is a factor in its success. In 2023, corporate donations in Japan's hometown tax system totaled 47 billion yen (about 4.53 billion won), more than five times the amount raised through Korea's hometown love donations.

The scene of the Lunar New Year commemorative hometown love donation system event held on Feb. 6 last year at the National Agricultural Cooperative Federation headquarters in Jung-gu, Seoul. /Courtesy of News1

◇ In Japan, cases of collusion between corporations and local governments arise… Government "reviews limited expansion"

The Korean government is also working on expanding the eligibility for hometown love donations to corporations. Recent reports indicate that the Vice Minister of the Ministry of the Interior and Safety and others visited Japan to examine the operational status of corporate donations. A ministry official stated, "We aim to design the system so that corporate contributions to hometown love donations exceed 1 trillion won annually within five years." Several legislative proposals to allow corporate participation in hometown love donations have also been submitted to the National Assembly.

However, it is reported that there are challenges for the government to readily allow corporations to participate in hometown love donations. Japan has provided tax reduction benefits starting in 2016 through the "Regional Revitalization Support Tax System" (地方創生応援税制) for companies donating to local governments. However, issues have arisen, such as companies unfairly receiving business contracts after donating to local governments.

In 2022, the Kumini-cho area of Fukushima Prefecture in Japan received approximately 4.2 billion won in donations through the hometown tax from the Tokyo-based IT (information technology) company "DMM.com" and its affiliates. The local government then initiated a project to develop high-performance ambulances to lease to other local governments, after which it was revealed that a related company from the DMM Group had won the contract. Consequently, the Japanese government decided to revoke the project's approval, judging that "there was a quid pro quo."

As a result, our government is reportedly reviewing a method to allow corporate donations while limiting the scope. A ministry official stated, "We are considering whether to allow only corporations based in the local government receiving the donations to contribute, or to initially allow corporate donations only in areas experiencing population decline and gradually expand to other regions."

Meanwhile, the Ministry of the Interior and Safety is also exploring ways to activate individual donations. It is proposed to increase the tax credit limit to 300,000 won. This requires consultation with the Ministry of Economy and Finance.