In among all of the political manoeuvring and, for some like Masuzoe, (jp) the distasteful power grab by people on all sides of the “house,” there has been some good news. The DPJ, LDP and New Komeito, despite some disagreement over how to reform the tax system in general, are expediting (jp) through the Diet a bill that offers those donating to NPOs more favourable treatment in the tax system, as well as makes NPO certification for tax deduction purposes much easier than it has been.
In terms of the certification process there are two key changes. One is the transfer of responsibility for certifying NPOs for tax deduction purposes from the National Tax Agency (国税庁) to local municipalities. This will greatly speed up the certification process itself as municipalities will obviously be closer to the NPOs, more aware of their activities, and thus be in a better position to make a judgement without putting the NPO through a difficult and complex centralized process.
The second is that an additional criterion will be added. Currently an organization needs to receive more than 1/5th of its income in the form of donations for its donors to be considered for preferential tax treatment (the “public support test”). The additional criterion now being introduced is that an organization may be considered eligible for NPO tax deduction status if more than 100 people have donated more than 3000 yen to the organization. Either of these criteria may be used as the basis for certification. These changes alone are expected to help the estimated 43000 NPOs in Japan acquire this certification – the article estimates less than 215 of these NPOs have acquired this preferential treatment up until now.
There will also be changes to the way that income and tax liabilities are treated when one donates to an NPO. Currently the only way to reduce your tax burden through donations is through the “taxable income deduction” approach. With the new law you will be able to choose to receive a “tax credit” for 50% of donations up to 25% of your income (40% of the donation coming off your income tax bill, with 10% coming off your municipal tax bill). This is estimated to incentivize people from middle and lower income groups to donate to NPOs, as the previous system of income deduction favoured higher income earners (due to their paying higher taxes on the higher amounts of income and thus having an incentive to lower their taxable income). Both methods will now be available.
Japan for many, despite being a communitarian-orientated society, has a surprisingly weak civil society compared to other developed countries. Part of this has been due to the overbearing influence of the state in many areas of society including the economy, with the government having no incentive to promote “mediating” organizations between strong community (ie the “very local”) level organizations and the state itself. The Kobe earthquake and the rapid response of civil society organizations in comparison to the central government hastened the first round of changes to the NPO law. However it has only been considered to be partially effective. Prior to the 2011 triple disaster there was already cross-party discussion of the need for a new NPO law – this was a pet project of former Prime Minister Hatoyama. The passage of the law was looking touch and go due to the political divide leading up the earthquake and while that divide certainly still exists, given the role of NPOs in the response to the recent disasters all parties considered that waiting any longer would impact upon the ongoing recovery. From a longer-term perspective, this is a significant change and an up-tick in civil society activity can’t help but have an impact on Japan’s politics going forward, even if the impact will take a number of years to materialize.