Originally published on: September 04, 2024
Japan’s Financial Services Agency (FSA) has recently unveiled its ambitious plan to revamp the tax code by 2025, with a special focus on crypto assets that could potentially lead to a reduction in their tax rates.
Treating Crypto Assets as Investment-Grade Financial Assets
In its call for tax reform on Aug. 30, the FSA emphasized the importance of treating crypto assets as traditional financial assets, paving the way for the public to invest in this burgeoning sector. The regulatory body proposed that cryptocurrencies should be viewed as a legitimate investment option for the public, aligning them with conventional financial instruments.
Current Taxation Framework for Crypto Profits in Japan
Currently, profits generated from crypto transactions in Japan are categorized as miscellaneous income and taxed at rates ranging from 15% to 55%. Individuals may face a substantial tax rate of 55% on earnings exceeding 200,000 Japanese yen ($1,377), varying according to their income tax bracket. In contrast, profits from stock trading are taxed at a maximum rate of 20%.
For corporate entities holding crypto assets, a flat tax rate of 30% is applicable on their holdings at the end of the fiscal year, irrespective of whether profits have been realized through transactions.
Advocacy for Crypto Tax Reform in Japan
The Japan Blockchain Association and other proponents of the crypto industry have been advocating for a revision of the national tax framework governing digital assets. The Japan Blockchain Association formally urged the government to reduce the tax burden on crypto assets in 2023 and submitted a request for tax reform for the 2025 fiscal year on Jul. 19. Their proposals include implementing a flat 20% tax rate for crypto assets and introducing a three-year loss carryover deduction to stimulate growth in the country’s crypto sector.
Policy-Making Process and Future Implications
Tax reform requests from various government ministries are channeled to the ruling party, then reviewed by a tax system research committee and the national legislature. To become law, the reform must receive approval from both houses of the Japanese government, ensuring a comprehensive and democratic decision-making process.
Despite ongoing efforts to reshape the tax landscape for crypto assets, substantial policy changes are yet to materialize in the Japanese industry. The discord between advocacy groups and regulatory authorities underscores the complex and evolving nature of crypto taxation in Japan.
By providing clarity and aligning tax policies with industry dynamics, Japan aims to bolster its position as a crypto-friendly jurisdiction while striking a balance between regulation and innovation in this rapidly evolving sector.
