In a new development, Japan is considering a task code change that could reduce the tax burden on cryptocurrency. The latest revelation follows a proposal by the country’s financial regulator, the Financial Services Agency (FSA) to set a flat 20% tax rate on crypto gains.
Notably, the tax recommendation represented a decrement from the initial 55%. Per an FSA report, cryptocurrencies are monetary assets and investment targets for the public. Hence, they should be regarded publicly as financial assets.
Japan’s Current Tax System Perception of Cryptocurrencies
Japan’s current tax system categorizes crypto profits as “miscellaneous income.” Therefore, depending on the individual’s total income, the categorization will subject digital profits to high tax rates ranging from 15% to 55%.
Noteworthily, Investors whose crypto profits exceed $1,377 (200,000 Japanese yen) face these higher tax rates. Contrastingly, stock market trading is capped at a flat 20% rate.
Furthermore, according to Japanese laws on cryptocurrencies, corporate crypto asset holders must remit a flat 30% fee on their holding. The fixed fee will be irrespective of whether they have made any profit off these assets.
Expectedly, the financial strain placed on digital assets often acts as a deterrent for many retail investors considering them. Hence, it has hampered the Japanese investors' interests in crypto trading.
Crypto taxation: The #Japanese government is considering changing the current maximum tax rate of 55% for cryptocurrencies to a unified 20% tax rate in response to investor feedback.
— MartyParty (@martypartymusic) September 3, 2024
Japan's Crypto Tax Slash Plans will Enhance Crypto Participation
The FSA's proposal will target correcting the biases above. At the same time, creating a better tax environment for individuals and corporate investors interested in cryptocurrencies.
Because this proposal hopes to reduce the complexity and tax burden associated with cryptocurrencies, the change could make them more attractive in the public eye.
Additionally, the reduction in tax burden on digital assets in the Japanese crypto marketplace is long overdue. For context, in 2023, the Japan Blockchain Association (JBA) pushed for a flat 20% tax rate and provision of a loss carryover system.
However, like other former proposals, JBA's effort did not cause a significant policy change in the Asian country. Therefore, market participants would hope that the FSA's involvement will elicit the paradigm shift that will culminate in the eventual tax reduction.