Japan’s Governing Party Calls for Prompt Revisions to Cryptocurrency Taxation

The Liberal Democratic Party, Japan’s ruling party, is advocating for the government to implement “immediate” reforms regarding crypto taxation.

According to an official release from the Liberal Democratic Party and a report from the Japanese media outlet CoinPost, the party’s web3 project team presented a “White Paper” on April 12.

In February, the government announced intentions to permit venture capital firms to invest in local crypto enterprises.

Japan’s Ruling Party Seeks Changes in Crypto Policy

The team indicated that “profits and losses” from “cryptoasset transactions” ought to “be subject to separate taxation through self-assessment.”

They emphasized that this matter “should be addressed immediately.” The report has been forwarded to the party’s Digital Society Promotion unit.

At present, Japanese legislation requires crypto traders to report crypto trading profits and losses in their annual income declarations.

What Are the Regulations Regarding Crypto Tax in Japan?

Taxpayers in Japan must declare all earnings related to crypto as “other income.” This implies that while individuals with lower earnings may pay as little as 11% on their crypto trading profits, those in higher tax brackets could face rates exceeding 50%.

In most other nations that impose taxes on crypto trading profits, traders are required to pay capital gains tax on their earnings, similar to the taxation of assets like stocks and shares.

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Advocates have been pressing Tokyo for years to alter its position. Nevertheless, Prime Minister Fumio Kishida has recently adopted a notably pro-web3 approach.

Kishida has promoted the sector, expressed a readiness to amend tax regulations, and endorsed NFT-driven economic growth.

This has already resulted in tax reforms for corporations, which will no longer be required to pay taxes on “unrealized” gains.

This pertains to coins that increase in value during a financial year but are not converted to fiat within the same timeframe.

What Are the Next Steps?

If the Digital Society Promotion unit endorses the tax reform for individual traders, it will be forwarded to the Political Affairs Research Council.

Should this council approve, the tax reform will become official policy of the Liberal Democratic Party. Subsequently, lawmakers will be able to draft a bill to present to the National Diet.

While these processes may be lengthy, they are not expected to pose significant barriers to the proposed changes from the web3 project team.

The composition of Japan’s House of Representatives. Darker green dots represent LDP seats. (Source: BibiBegin)

The ruling party in Japan has maintained power since 1955. It currently holds 259 seats out of a total of 465 in the House of Representatives and 116 of 248 seats in the upper house, the House of Councillors.

Consequently, it seems to be a matter of “when,” not “if,” for Japanese crypto traders anticipating tax reform.

Is a Web3 Revolution Imminent in Japan?

The authors of the white paper assert their desire to position Japan “at the forefront of the web3 revolution.”

They also expressed strong support for the advancement of blockchain technology in “social infrastructure” initiatives.

In addition to separating the taxation of crypto profits from income tax, the proposed reforms would permit traders to defer losses for up to three years.

The authors further proposed a discussion on Japan’s stringent crypto leverage trading regulations, an issue that has troubled Japanese exchanges for several years.

The headquarters of Japan’s ruling party, the Liberal Democratic Party. (Source: Junpei Abe [CC BY 2.0])

Insiders from the Japanese crypto industry appeared pleased with the developments, with some noting that the white paper addresses “many” of their concerns.

Sota Watanabe, CEO of Startale Labs and a member of the Astar Network, stated that the paper “comprehensively covers” the “key issues” that the industry believes “require improvement.”

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Genki Oda, Founder of BITPoint and Vice Chairman of the self-regulating Japan Crypto Asset Exchange Association, agreed. Oda remarked:

“Almost all of the [industry’s] requests have been included [in the white paper]. It is crucial to implement [these reforms] in the future. We will take steps to ensure it becomes a reality.”

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