Thailand’s proposed “Hometown Tax”: Learning from Japan’s Furusato Nozei model

Japan’s Hometown Tax (Furusato Nozei): How the system works 

Introduced in 2008, the Furusato Nozei system was designed to address economic imbalances between urban and rural areas. Its key features include: 

• Voluntary redirection of tax payments 
  Taxpayers may donate to any municipality, regardless of their residence or place of origin. 
• Tax deduction mechanism 
  Donations exceeding JPY 2,000 are effectively offset against the taxpayer’s income tax and resident tax (primarily through resident tax credits), subject to an income-based cap. 
• Economic incentives “thank-you gifts”  
  Participating municipalities may offer local products, typically capped at 30% of the donation value. 

Thailand’s proposed Hometown Tax framework 

Thailand’s proposed framework, currently under consideration, adopts a similar concept while tailoring it to the local fiscal structure. Based on the draft Local Development Income Tax and Donation System Act, the key features include: 

• Reallocation of existing income tax
  A portion of income tax collected by the Thai Revenue Department may be allocated to local administrative organisations, particularly based on the taxpayer’s domicile or place of business. This reflects a revenue-sharing mechanism rather than a new tax. 
• Optional taxpayer participation (donation mechanism)
  Taxpayers may be able to direct part of their tax contribution to specific provinces or local communities, similar to the Japanese model. 
• Tax incentives for donors
  Donations to local administrative organisations are expected to be treated as deductible contributions under the Revenue Code, with potential additional benefits (e.g., under the Land and Building Tax regime), subject to further clarification. 
• Local economic incentives
  Local authorities may provide community products or services as a form of appreciation to donors, within prescribed limits. 
• Policy objective: decentralization
  The regime is intended to redistribute fiscal resources and reduce the concentration of economic activity in major urban areas such as Bangkok. 

Forvis Mazars’ observation 

From a tax perspective, the proposed “Hometown Tax” should not be viewed as introducing an additional tax burden. Based on current policy direction, the regime is intended to operate primarily as a reallocation mechanism of existing income tax, allowing taxpayers to support specific local communities. 

That said, certain aspects of the draft framework (including the detailed mechanics of allocation and any potential local-level adjustments) remain subject to further clarification. Taxpayers and businesses should therefore continue to monitor developments as the legislation progresses. 

As the proposal evolves, further guidance will be required on implementation mechanics, eligibility criteria, and administrative procedures. Both taxpayers and local authorities should closely monitor developments to assess the practical tax and compliance implications. 

References: 

• “Ministry of Finance Proposes ‘Hometown Tax’ to Combat Economic Centralisation”. Retrieved from The Nation. 
• “The Ministry of Interior pushes ‘Hometown Tax’: paying taxes or donating money to one’s hometown to receive a land tax reduction.” Retrieved from Thansettakij.