Japanese crypto industry urges Tokyo to reform tax law

Japanese crypto-asset-related firms have called on the government to undertake tax reforms – arguing that the current system is out of sync with tax rules in other countries.

The proposals come from Japan Cryptoasset Business Association (JCBA) and Japan Virtual Currency Exchange Association (JVCEA), which per CoinPost released a joint report calling for tax reform in 2023.

The bodies also addressed the press and clarified their goals, which mainly centered on the need to simplify the crypto tax filing process. It also pointed out “inconsistencies” in the existing system. And in addition to noting that Japan’s policies are out of step with “overseas tax systems for crypto assets,” the bodies insisted that crypto has a key role to play in the Web3 world.

The latter point may well catch the attention of senior lawmakers in the ruling Liberal Democratic Party (LDP), which has launched a Web3 task force. The task force has also spoken about the need to rethink Japan’s crypto tax rules – amid claims that overly restrictive protocols are forcing companies, talent and capital abroad. Opposition leaders have also become vocal in their own demands for change.

The crux of the problem is that crypto is currently classified as “other income” in tax returns. This is quite unlike the picture in other countries, where crypto is usually subject to capital gains tax rules. In many nations, crypto-related profits are not taxed at all until coins are converted to fiat.

However, in Japan (and under current rules), the rate at which crypto-related income is taxed depends on the total income of a person. This means that the payment of crypto tax – for higher incomes – can rise to around 50%.

Currency trading, on the other hand, is subject to a flat 20% capital gains tax.

The JBCA stated that it had conducted an investor survey, speaking to over 26,000 people – and claimed that data from this survey showed that the tax reforms it suggested would actually lead to “an increase in the number of taxpayers” and would “not necessarily lead to a decrease in national revenue” from crypto tax.

The body further claimed that it had carried out “trial calculations” on the basis of a 20% capital gains tax – and found that tax revenues would actually increase under this system “by approximately 20%.”

However, these calculations seem to have taken into account the fact that there would likely be an increase in demand for crypto if the tax reforms were to take place.

The body, which mainly represents crypto-related firms, argued that “if things continue in the status quo, the tax system will become a bottleneck for the spread of crypto assets.” This will hamper “the development of products and services in Japan” and leave the country lagging behind its Asian, European and American counterparts in the Web3 era, the body said.

It further added that the level of regulation that the crypto sector was now complying with in Japan was “inconsistent” with the existing tax rules – suggesting that the industry was becoming even “healthier” than the traditional financial world. As such, the JBCA suggested, a more lenient tax system was now appropriate.

JVCEA represents national and international crypto exchanges that are either registered with the regulator Finance Agency or is in the process of applying for an operating licence.
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