Japan’s top crypto lobbies are pushing for lower taxes to attract talent

Japan’s strongest crypto lobby groups say current tax rates are hindering industrial growth and are calling for lower taxes to prevent talent exodus.

Bloomberg News reported that two of the top lobbying groups, the Japan Cryptoasset Business Association (JCBA) and the Japan Virtual and Crypto assets Exchange Association (JVCEA), are working on a proposal to be submitted to Japan’s Financial Services Agency (FSA) this week.

Politicians from different parties have also raised the same concerns. A member of the ruling Liberal Democratic Party, Masaaki Taira, is one of the most vocal politicians on the issue. He has voiced and hounded his colleagues to loosen regulations to “stem the outflow of digital talent”.

Changes in tax rates

According to an internal memo seen by Bloomberg, the proposal would offer re-adjustments to current tax policy to make it cheaper to hold and issue crypto.

Japan currently taxes all profits from crypto investments, both realized and unrealized, at a rate of 30% for companies and up to 55% for individual investors.

The proposal would offer to lower these percentages. It will offer to make all gains on crypto income tax-free, as long as they are not obtained from short-term positions for the companies. For individual investors, however, it will propose a fixed rate of 20%.

Since some politicians raised the same questions, the FSA has discussed the need to lower crypto taxes as well, according to Bloomberg. Although there are talks of reducing taxes, the watchdog did not decide whether to include this update in its annual audit. The annual audit is sent to the tax authorities every August. JVCEA and JCBA plan to deliver the proposal by then.

Crypto regulations in Japan

Japan is the first country to hint at a legal system to regulate cryptocurrencies. Japan already recognized crypto-assets as legal tender in April 2017.

Japan’s watchdog FSA strengthened crypto exchange rules in 2019 after the country suffered the Coincheck hack. The hack was one of the largest at the time, with hackers stealing over $500 million in crypto assets.

Since then, all crypto exchange companies must comply with the country’s anti-money laundering (AML) and combating financial terrorism (CFT) regulations.

After the 2019 update, Japan continued to imply more rules and regulations for the crypto space. In 2021, the county established an initiative to regulate DeFi operations. After the LUNA stablecoin crash, Japan passed a bill restricting issuance of stablecoins to licensed banks only.

High taxes and tight regulations have already pushed some crypto companies out of Japan. Most moved to the nearest and friendliest nation, Singapore.

Stake Technologies’ CEO Sota Watanabe, who also moved his company to Singapore, said Bloomberg:

“Japan is an impossible place to do business. The global battle for Web 3.0 hegemony is underway, and yet Japan is not even at the starting line.”

Despite the strict rules, the FSA believes that Japan’s cryptosphere is self-regulating. The country established the JVCEA in 2018 to self-regulate the crypto industry. However, the FSA expressed its dissatisfaction with the self-regulatory system very recently, saying:

“When Japan decided to experiment with self-regulation of the cryptocurrency industry, many people around the world said it would not work. Right now, unfortunately, it looks like they might be right.”