Ever since amendment of the Civil Code provisions on public-interest corporations was put on the agenda, I have been invited to all manner of meetings and workshops and have been attending others on my own initiative. Naturally enough, I meet and debate with people who hold diverse views.

As in any industry, the vast majority of those I meet speak from within a framework of similar knowledge and conventional wisdom. Time and again I have encountered scenes that astonish me.

Ordinary citizens undertake activities to serve society and people in general. These private nonprofit activities, as they are called, are essential to society. Such activities require money and various other resources. People give money for these activities. With this money art museums are built and foundations established.

How does this look, though, to the tax collectors? "Japan's progressive tax rates are really steep, so it's probably impossible, but if a Japanese like Bill Gates or Ted Turner were to appear, someone who could afford to set up a big foundation, we wouldn't be able to sleep from annoyance at all the tax revenue we'd lose because of preferential tax measures for foundation," they say. Or "Ah, we missed the chance to collect inheritance taxes."

It's fine for government officials to devote themselves faithfully to their duties. But is the conventional way of thinking about the disbursement of funds from the treasury coffers for things that serve everyone right? The officials' thinking goes like this: The best --indeed, the only--way is for the government to collect taxes and then allocate funds for whatever they (or, more precisely, elected legislators) decide is in the public good. I don't see anything wrong with taxpayers having some say in how their taxes are used. As a matter of fact, in some Central European countries taxpayers can earmark a certain percentage of their taxes for NPOs of their own choosing.

Even if we don't go that far, not taxing endeavors that serve society and people in general --in other words, profits that aren't used for private gain-- is an effective means of bringing about "small government."

Say someone opens a bakery to give employment to disabled people. Or sets up a foundation to preserve a traditional performing art that is dying out for lack of a successor. Or creates a fund-raising organization to help sufferers of an incurable disease and their families. Or starts providing meals to people who need home nursing care. What I am talking about is either not taxing the profits of such organizations or taxing them at a lower rate. Which is better, this or, having collected taxes, returning some of the revenue in the form of subsidies? The answer, surely, is self-evident.

There needs to be a reason for reducing taxes, they say; and judging whether that reason applies calls for a bureaucratic seal of approval. In regard to a particular organization, for example, the tax authorities check whether its actual activities agree with its advertised activities. Then and only then can taxes be lowered. If this is what we are talking about, I have no problem with it. After all, people are penalized for falsely claiming deductions on their tax returns. What is astonishing is that this apparently reasonable process has an entirely different meaning. It does not, in fact, mean that someone checks after the fact to see whether words and deeds match up. What does it mean, then?

Let's begin with a case in which a butcher claiming to be selling mutton is actually selling dog meat. In other words, a sow's ear is being passed off as a silk purse. This is a problem if the mutton marketing industry is afforded tax concessions. First, the bureaucrats have to approve mutton as having high nutritious value and thus being a kind of meat everyone should eat. So far, so good. But the bureaucrats insist that the seller cannot be trusted unless his character and associations are investigated and he is deemed not to be the kind of person who would sell dog meat as mutton.

Everyone knows that people who try to evade taxes--concealing information, lying, and looking for loopholes--are as common as grains of sand. (This is true to a greater or lesser extent of other laws, as well, but is especially blatant when it comes to tax law.) Public-interest corporations, especially foundations, depend on substantial endowments for their corporate status, so the tax authorities are particularly wary of such organizations. They claim that funds are used to endow foundations just before the money would be seized, that people create foundations to escape inheritance taxes, that they establish foundations for worthless sons (or daughters) and make them officers to set them up for life. It is all but impossible to foresee such abuses and shut off all escape routes. The authorities' astonishing "logic" is that since they cannot prevent wrongdoing, they should deny foundations preferential tax treatment.

Does this mean turning a blind eye to wrongdoing? If foundations were allowed to be set up on the basis of "rules of registration," no doubt there would be some dubious outfits established by bad apples to evade taxes. Would we have to simply stand by with folded arms? Of course not. And in addressing the question of whether there should be preferential tax treatment or tax incentives for private nonprofit activities, or the functions and social significance of public-interest corporations as well as their activities, not permitting this just because the worst-case scenario cannot be excluded is far too extreme.

Private nonprofit activities are not just nice but indispensable. My basic premise is that they are essential to a democratic society. If so, naturally the tax system should take this into account. The debate should focus on how we can minimize abuse of tax privileges.

First, no matter how much it annoys the tax authorities, they should take a lenient view of the use of private assets to create NPOs to serve society and people. Indeed, the authorities should switch their attitude to active encouragement of such endeavors. Whether these NPOs are actually serving society and people is something that should be checked after the fact. It should not be too hard to penalize NPOs that don't stack up by removing tax privileges retroactively. And in the case of people who shift assets to a newly set up corporation to avoid meeting obligations (including taxes), it should be possible to deal with behavior connected with disputed obligations by imposing certain limits and retroactively penalizing behavior that breaches the limits. Naturally care should be taken that well-intentioned third parties are not hurt.

What do I mean by activities that serve society and people? I think it is enough if they are not for profit; if, in other words, any profits that there may be are not simply divided up among those running the show. What this means, in brief, is investment that does not seek dividendsﾑfunds donated, no strings attached, to help those in need. Taxing such donations is unreasonable.

But what about like-minded people who form a haiku group, surely a nonprofit activity, or someone who decides to open a nonprofit greengrocery? I suppose we need to reply to such questions. Frankly, in my view whether someone wants to run a steel mill or drive a taxi, as long as it can be done on a nonprofit basis the income should not be taxed (this assumes, of course, that such eccentrics exist).

But people dismiss this approach as contrary to conventional wisdom. In that case, we can list a number of fields appropriate to NPOs and exempt organizations that meet the criteria from taxes. Education, culture, social welfare, animal welfare, international exchange, the environmentﾑthe list goes on and on.

Another question remains. What about someone who says all the right things when setting up an NPO but then engages in utterly different activities? The authorities want above all to avoid such cases. They say their intention is not to create a system based on the assumption that it will be abused, but nor is it to create a system knowing full well that it will be abused. Fair enough. But at the risk of being tedious, I repeat that all systems are open to abuse.

The only thing to do is check after the fact. The quickest way to prevent abuse is to demand full disclosure of management information from NPOs. Increasing the amount of information that must be disclosed and making it available on the Internet is a much more effective way of exposing wrongdoing than hiring 100 more tax auditors.

Some people find it weird that there are organizations that simply keep amassing money for no discernible reason or object to membership-type organizations' holding billions of yen in internal reserves. I don't really see what is so weird or objectionable.

Of course I understand why members of an organization would find it objectionable if they were not receiving services commensurate with their membership fees. And it is reasonable to disapprove when money donated or paid in the expectation that it will be used to serve society and people simply piles up unused. There are any number of ways to deal with such problems, though, such as taxing internal reserves that exceed a certain number of years' aggregate operational costs or requiring that a set percentage of the endowment be spent.

There are people who are very good at coming up with reasons why things cannot be done. What we need is more people who can think of ways of doing things that could not be done before. In short, we need people who can add a little spice to life, astonishing us in a positive way.