Japan is the only one among seven major industrialized nations to tax bitcoin. There is an increasing number of critics within the country arguing that the consumption tax hurts Japan’s competitiveness, writes Toshihisa Kinouchi of Nikkei.
While Japan currently ponders deeming bitcoin and virtual currencies as currencies similar to conventional fiat currencies, there is another debate surrounding bitcoin that is being talked among regulators and politicians.
Tsukasa Akimoto, a member of the Liberal Democratic Party -- the ruling party in the country -- put forth a question toward Finance Minister Taro Aso, asking: “Can’t you consider not imposing consumption tax on bitcoins in line with the international trend?”
Defending Japan’s bitcoin taxation, Aso responded by stating “Japan is not alone [in taxing bitcoins]”. Aso pointed to countries including Australia who tax virtual currencies like Bitcoin. The discussion occurred during a lower house budget committee meeting on February 5.
However, there is a growing voice of disapproval toward the practice of taxing the cryptocurrency and other virtual currencies.
Dealers and Consumers Get a Bad Bitcoin Deal
As things stand, individuals purchasing bitcoin with yen through Japanese exchanges are subject to an 8% consumption tax rate, similar to the tax rate imposed on physical goods. Such a high tax rate is bound to put off Japanese nationals and bitcoin adopters from indulging virtual currencies. For dealers, it’s even worse.
Bitcoin companies and exchanges outside Japan are able to sell bitcoins to Japanese buyers at a cheaper rate, despite the consumption tax levied at customs when an asset is coming into Japanese shores. While imported goods are routinely subjected to tax collected at customs, imported bitcoins do not have an overbearing regulator that keeps track of the influx of bitcoins purchased outside the country.
Yuzo Kano, head of the Japan Authority of Digital Assets, the industry group for virtual currencies in the country is quoted by the Nikkei as stating:
Japan is going against the world. The taxation is bad for Japan in terms of its competitiveness. We need a level playing field that lets Japanese dealers compete fairly with outsiders.
Welcoming Virtual Currencies and Fintech
The talk of curbing taxes toward bitcoin comes during a time when the country’s financial regulators at the Financial System Council (FSA) have put together a working group that developed a draft of Japan’s first ever cryptocurrency regulations. The call for regulating bitcoin is predicable in the aftermath of the Mt. Gox debacle.
If the draft is passed into law, Kinouchi contends that Japan is setting the foundations for a “healthy regulatory environment” for virtual currencies. However, bitcoin will still be taxed, since it will be treated as an ‘object’ in spite of recent developments favoring bitcoin adoption. Meanwhile, electronic money is exempt from the same tax because of its potential use in paying for goods and services as an alternative to conventional currencies.
Japan will host the Group of Seven summit in May, a meeting of finance ministers and central bank governors of the seven major economies in the world. The participants are the G7 nations of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.
Predictably, financial technology is bound to be a significant topic of subject during the summit. In a means to proactively prepare for the oncoming fintech boom, Finance Minister Aso confirmed that he “will work to create the necessary environment” to facilitate the swell of fintech innovation in Japan.
Killing the tax levied on bitcoin, would be a good way to get started.
Featured image from Shutterstock.