Japan’s FSA Sets Sights on Crypto Taxes in 2025 Tax Plan: Progressive or Regressive?
For the first time, Japan's new tax plans include provisions for crypto assets. (Photo by David Mareuil/Anadolu Agency via Getty Images)
Key Takeaways
- Japan may add cryptocurrency transactions under its tax umbrella.
- The country currently taxes crypto gains at a whopping 55%.
- The new tax regime proposes a flat tax rate of 20%.
Japan, a technology-oriented country and among the early adopters of cryptocurrency, is moving to bring the industry under its tax umbrella.
In response to long-standing calls from the public and Web3 businesses, the Financial Service Agency (FSA) has announced plans for a comprehensive overhaul of the tax code in 2025.
For the first time, the plans include provisions for crypto assets, a move that promises to bring clarity to the industry’s murky tax landscape.
FSA Mentions Crypto For the First Time
For nearly two years, crypto users and advocates in Japan have been pushing for the recognition of digital assets within the corporate tax regime.
The FSA’s decision to include crypto assets in the tax reform proposal marks a notable shift from previous years when Japanese regulators remained hesitant to acknowledge the industry formally.
As Japan’s financial regulatory framework is structured, government ministries submit tax reform requests to the ruling party, which then passes them to a tax committee for consideration.
Crypto-related tax reform proposals, submitted over the weekend, have finally made their way onto the agenda.
Mired in Ambiguity
Despite Japan’s relatively permissive stance on cryptocurrency, the regulatory landscape has long been characterized by ambiguity.
While the FSA recognizes the purchasing power of cryptocurrencies – permitting retail users to engage in trading activities – cryptocurrencies are not considered legal tender.
This dichotomy has contributed to a sense of uncertainty among potential investors, leading to relatively low adoption rates.
A 2020 survey found that only 4% of Japanese residents used or owned cryptocurrencies, highlighting their hesitance toward the industry.
One possible explanation for this low uptake is the country’s taxation system, which has historically levied substantial taxes on crypto assets, dissuading many from exploring the market.
In Japan, crypto profits are taxed as miscellaneous income, with the highest tax rate of 55% on earnings over 200,000 Japanese yen.
On the other hand, corporate crypto holders have to pay a flat 30% tax on their crypto holdings rather than profits or income.
A New Tax Regime on the Horizon
The new tax plan proposes lowering the crypto tax to 20%.
The main thrust of the tax reform proposal is to broaden the scope of loss offset; a provision last expanded in 2016 to cover specified public bonds and listed stocks.
In response to growing demand, the new proposal would bring crypto assets under the loss offset umbrella, a move that could provide much-needed relief to investors.
Several ministries, including those overseeing agriculture, forestry, fisheries, the economy, and trade and industry, are pushing for tax reform.
However, it remains uncertain whether their proposals will ultimately lead to the inclusion of crypto assets in the loss offset category.
A similar proposal to reclassify crypto assets and remove them from the 55% tax bracket was floated last year with the aim of fostering growth in the Web3 ecosystem.
Despite these efforts, the requests ultimately failed to yield any policy changes for the industry.
International Comparison: Crypto-Friendly Countries
Japan might be considered a crypto-progressive nation based on the ease of using digital assets. However, the high tax rates have cast doubt over the progressive nature, as evidenced by the low adoption rate.
Cryptocurrencies are a relatively new technology industry, and like any other new technology, crypto-centered businesses have faced skepticism from governments and the general public.
However, after over a decade of proving the importance of underlying technology, the crypto industry needs government support to thrive and be adopted by the masses.
Countries with lower tax rates and better regulation clarity have attracted more crypto businesses than others.
For example, the United Arab Emirates has become a crypto hub in Asia, where the taxes on crypto profits are zero.
As a result, several crypto businesses from neighboring countries like India have moved to the UAE to set up their crypto businesses.
Hong Kong, Singapore, Thailand, and Indonesia are other Asian countries that have thrived due to progressive crypto regulations and low crypto taxes.
On the other hand, India imposed a 30% flat crypto tax with regulatory clarity, forcing many budding crypto companies to relocate mainly to Dubai, UAE.
Pakistan, Bangladesh, and China are other Asian countries where crypto use is prohibited.
A New Era for Crypto in Japan?
Japan’s potential move to a more crypto-friendly tax regime could be a step in the right direction.
However, it remains to be seen whether the new proposal will ultimately lead to increased adoption and growth in the industry.
For now, the inclusion of crypto assets in the tax reform proposal is a promising sign that regulators are beginning to take a more nuanced view of crypto assets.
Japanese PM Fumio Kishida Champions Web3 and Blockchain For Social Transformation
