Japan is accelerating its cryptocurrency tax reforms, aiming to change the way for domestic cryptocurrency companies. According to official releases from CoinPost and the Financial Services Agency (FSA), the regulatory body has submitted legislative change requests to the government. This move has received backing from the UK's Financial Services Authority, which is looking to amend its crypto business tax system to abolish the current 'unrealized gains' mechanism for domestic firms.
Currently, under Japanese laws, if a company holds crypto assets, it must pay taxes on unrealized gains (appreciation in the token value) at the end of each fiscal year. In contrast, companies in other nations only need to pay taxes on cryptocurrencies they've sold or exchanged for fiat currency. This rule has long been criticized for burdening companies and hindering innovation in crypto assets and blockchain.
The FSA document highlighted that the Ministry of Economy, Trade, and Industry has also endorsed the reforms. The leading crypto industry body, the Japan Blockchain Association (JBA), has also urged the FSA to ensure that the tax reform extends to crypto assets held by third parties. Startale's CEO, Sota Watanabe, responded to JBA's stance on social media, warning of a 'crisis' in the domestic crypto industry. He stated, 'It is very important that these reforms are made this year. We have already seen outbound startups overseas until now. I have a feeling that companies in Japan will leave one after another next year if we do not do so. I think this will lead to the hollowing out of Japanese industry.'
The JBA also urged the FSA to reform how individuals are taxed, hoping regulators would allow traders to defer losses. The industry association also wants Tokyo to exempt individual crypto trading from taxes. Some critics also hope the government will institute a 20% fixed capital gains rate on crypto-to-fiat trades, rather than taxing crypto as a form of "miscellaneous income."
In its press release, the FSA explained that the call for legislative change stems from 'improving the promotional environment for Web3, facilitating startups using blockchain technology.' The government is striving to support an industry that has lamented excessive regulation in recent years. Some lawmakers and business leaders claim prior governments have taxed Japanese firms out of the domestic market. They argue that overly eager regulators are pushing promising fintech startups abroad. However, recent events have witnessed the industry's resurgence, especially as Binance attempts to penetrate a market traditionally dominated by domestic startups and Japanese securities providers.
In July this year, Japan's Prime Minister Fumio Kishida underscored the government's commitment to bolstering the nation's Web3 and blockchain industry. Earlier in the year, the government also approved the adoption of FATF's travel rule and enacted a new law in June. These moves indicate that the government is actively promoting the growth of cryptocurrency and blockchain technology, providing a more conducive innovation and tax policy support for relevant enterprises.
The cryptocurrency tax reform in Japan is a crucial step in strengthening financial regulation and fostering innovative development. The government should continue its efforts, refining relevant policies and regulations, to offer a better developmental environment and support for crypto and blockchain businesses.
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