A court Thursday ruled that the government acted lawfully in removing a city that offered extravagant gift incentives to attract tax-deductible donations from the furusato nōzei (hometown tax) program, marking a first in the conflict between the central and local governments over the program.

The Osaka High Court said the internal affairs ministry’s decision to bar the city of Izumisano in Osaka Prefecture from the revised program, which began in June last year with new regulations on gift incentives, was justifiable.

The program, originally launched in 2008, allows taxpayers to donate to their hometowns or other municipalities of their choice and receive tax cuts, with the aim of easing the disparity in tax revenue between urban and rural areas.

But since the program sparked fierce competition among local governments to lure donations with expensive gifts such as personal computers, the ministry revised the program to limit gifts to those produced locally and with a value below 30 percent of donations.

As a result, Izumisano and three towns that do not abide by the rules were excluded from the program, making it impossible for donors to the municipalities to receive tax cuts.

“(Izumisano) greatly impacted other municipalities by collecting donations in ways that go against the program’s original purposes,” the court said.

The city offered donors incentives such as Amazon.com Inc. gift cards as well as meat and beer produced outside of Izumisano, collecting about ¥49.7 billion ($456 million) in fiscal 2018 — the most in the country.

It has argued that the ministry’s notice to municipalities to limit the value of locally produced gifts to below 30 percent of donations was nonbinding “technical advice” and that the removal of the city from the program was illegal.

Furthermore, Izumisano, which sued the state in November, claimed the ministry’s decision to ax the city from the program, based on the way it solicited donations prior to the start of the revised program, was an abuse of discretionary power.

But presiding Judge Hiroyuki Samura concluded the ministry did not abuse its power and the city should have corrected its “inappropriate” practice of offering expensive gift incentives.

“It is a shame that our claim wasn’t recognized,” Izumisano Mayor Hiroyasu Chiyomatsu said after the ruling. “We will decide whether to appeal after discussing the matter with our lawyers.”