[The Editors' Verdict] Japan's Hometown Tax Market Becomes a Platform Battlefield

Japan's SoftBank, led by Chairman Masayoshi Son, launched a hometown tax payment site called ‘Satofuru’ last October. The name combines the Japanese pronunciations of ‘Sato’ (village) and ‘Furu’ (full). Currently, it is linked with over 1,200 local governments nationwide and offers 400,000 types of thank-you gifts. The world's largest e-commerce company, Amazon, is reportedly set to enter the hometown tax payment market next year under the service name ‘Amazon Hometown’.

Kyung-ho Lee, Head of Issue & Trend Team

Our ‘Hometown Love Donation System’ is modeled after Japan’s ‘Hometown Tax Payment.’ After selecting their hometown or a region they wish to donate to, donors contribute at least 2,000 yen (approximately 18,000 won) to the respective local government, receive a donation receipt and thank-you gifts, and can claim tax deductions. Last year, the total amount donated through the hometown tax payment system reached 1.1175 trillion yen (about 100 trillion won), marking the beginning of the trillion-yen era. This is 15 years since the system was implemented in 2008. The number of people who received resident tax deductions through the hometown tax payment increased by 1.07 million from the previous year to a record high of 10.002 million. One in six of the 60 million resident taxpayers made hometown tax payments and received thank-you gifts.

The Hometown Love Donation System only allows fundraising through the public platform ‘Hometown Love e-Eum.’ Japan initially had a government-led system but opened it to the private sector in 2014. Since then, the market has grown explosively. Currently, there are more than 30 hometown tax payment sites. The top five dominating the market are Furusato Choice, Rakuten, Satofuru, Furunavi, and the latecomer SoftBank. Donors can make donations, select thank-you gifts, and choose donation destinations through private platforms just like online shopping. Delivery is also fast. Points are accumulated based on usage. Platform operators find this attractive in terms of sales, profitability, and customer acquisition. Additionally, they receive up to 10% commission from the donations collected from local governments using private platforms.

As competition among operators intensified, the Japanese government pushed to ban point accumulation, stating that "the original purpose of revitalizing hometowns is being undermined." Rakuten led a campaign gathering 1.85 million signatures opposing this, resulting in a postponement of the ban to October next year. Rakuten and others argue, "Points are borne by the platform, so there is no problem," and counter that "if SoftBank, Amazon, and others enter and competition intensifies, commissions will also decrease."

In its first year, the Hometown Love Donation System raised 56,600 donations worth 65.1 billion won from 243 local governments. This is difficult to compare with Japan’s 1,000 million donations from over 1,800 local governments totaling 10 trillion yen. As of October 23 this year, the total amount raised was 32.5 billion won with 248,000 donations, representing increases of 0.6% and 11% respectively compared to the same period last year. The government evaluates this as "smooth sailing this year," but considering two years of extensive promotion and local government efforts, it appears insufficient.

Our private platform market is also about to take off. Social enterprise Gonggammanse’s WigiB started announcing its service from December 2, and some private companies and banks are also entering. With a taxpayer base of 20 million people and if corporate donations are allowed as in Japan (currently only individuals can donate), the potential of the Hometown Love Donation System is substantial. If private platforms compete and cooperate with local governments to offer various thank-you gifts and fund projects, the Hometown Love Donation System could open a new chapter of growth. As the market expands, an era may come when Naver, Coupang, Baemin, and others enter. Of course, this assumes that the current controversies over abusive practices do not recur against local governments, regional businesses, and small merchants.