Photo/Illutration Amazon Japan enters the furusato nozei program’s intermediary business, leveraging next-day delivery and exclusive gift options. (Shinya Wake)

Amazon Japan has entered the “furusato nozei” (hometown tax) program’s intermediary business, just in time for the year-end rush of contributions.

Some local governments are already expressing interest in Amazon’s platform, with one municipality saying, “We want to prioritize attracting donations through Amazon.”

Driving this interest is Amazon’s astute strategy that highlights benefits for both local governments and donors.

Under the furusato nozei program, residents can donate cash to municipalities of their choice. In return, they receive tax deductions in their own jurisdictions and gifts from the local governments that received their donations.

Intermediary businesses handle donation processing and assist with sending gifts. They earn a portion of the donations as service fees from local governments. 

With diving into this program comes Amazon contending with four major platforms―Rakuten, Furusato Choice, Satofull and Furunavi―that are said to control more than 90 percent of the market share.

Each platform charges municipalities a service fee of around 10 percent, with little variation among them.

The total donations in fiscal 2023 reached approximately 1.12 trillion yen ($7 billion), growing the intermediary market to an estimated 110 billion yen in service fees.

Amazon’s late entry comes with competitive pricing.

The company has introduced several early discount plans, according to municipalities.

For example, one plan lowers the service fee to 3.8 percent if municipalities pay an initial fee of 2.5 million yen.

This means that raising about 40 million in donations within a year could cover the initial fee, with any additional donations providing municipalities with more funds than other platforms.

According to a survey by the internal affairs ministry, more than 1,400 municipalities collected over 40 million yen in donations in fiscal 2023.

Many municipalities that signed up for such plans with Amazon expect to attract more donations through the company compared to other platforms.

“We want to prioritize inventory for Amazon and ensure we don’t run out of gifts,” said an official from a city in western Japan.

Amazon’s strategy could also benefit donors.

Under the furusato nozei system, the internal affairs ministry requires municipalities to keep administrative expenses, including gift procurement and platform fees, within 50 percent of the donation amount.

One municipality in the Kyushu region said, “We’d rather not make this too public,” but revealed that Amazon allows donors to receive the same gift for a lower donation amount compared to other platforms.

Amazon’s early discount plans enable municipalities to allocate more of their budget to gift costs while staying within the 50 percent rule.

In this municipality, the donation amount for the same gift can differ as much as 9,000 yen between Amazon and competitors.

On the other hand, some municipalities have expressed concerns.

Amazon’s early discount plans offer lower service fees for about two years, but what happens afterward remains uncertain.

“I’m concerned that once Amazon secures donors and municipalities become more dependent on the platform, it might sharply raise its service fees,” said an official from a town in Tohoku region.

Hideaki Hirata, a professor at Hosei University well-versed in the furusato nozei system, said, “Competition among platforms leading to lower fees is beneficial as it means more funds for municipalities."

This does not mean Amazon's entry is a simple case of a new consumer option as Hirata added, “However, the growing reliance of municipalities on these platforms, and the fact that taxpayer money is flowing to a foreign-affiliated company, raise significant questions.”

Related News