The so-called hometown tax donation system — in which people who make donations to local governments of their choice get the amount (up to certain limits) deducted from the local tax imposed by the municipality where they reside — was introduced in 2008 to shore up the finances of struggling communities in rural areas. Now a dispute between the Internal Affairs and Communications Ministry and the city of Izumisano, Osaka Prefecture, over the system is set to develop into a court battle with implications for local autonomy and decentralization of administrative powers.

What's at stake is a decision by the internal affairs ministry to exclude Izumisano from the tax donation system when it was revised in June on the grounds that the city had defied the ministry's earlier request to limit "return gifts" to donors to local specialities worth up to 30 percent of the value of the donations made. Responding to a complaint by Izumisano, the Central and Local Government Dispute Management Council issued a recommendation last month that the ministry reconsider the decision against the city. This month, however, the ministry stated that its decision to exclude Izumisano from the system will not change, defying the recommendation by the dispute management panel.

The panel was launched in 2000 as part of the measures to decentralize administrative powers — which in principle changed the relationship between national and local governments from that of superior and subordinate to cooperation between equals — and is designed to check excessive intervention by the state in the matters of local autonomous bodies. The ministry's move to effectively dismiss the panel's recommendation in its dispute with Izumisano could mark a setback to decentralization. While the dispute calls for further review of the tax donation system, the principle under the law on local autonomy to minimize state intervention in the administration of local governments also needs to be reconfirmed.