The Liberal Democratic Party (LDP), Japan’s ruling party, is eager to swiftly implement crypto reform measures. In an official press release, the LDP’s web3 team unveiled their “White Paper” on April 12, marking a significant milestone. Back in February, authorities had proposed opening doors for local cryptocurrency firms seeking support from venture capital investors.
The team determined that the gains or losses from cryptocurrency transactions should be classified as personal income and subject to separate taxation based on the individual’s declaration. They emphasized the urgent need to resolve the key obstacle causing this issue and forwarded the report to the party’s Digital Society promotion section. Currently, Japanese law requires the settlement of profits or losses from crypto trading to be included in annual income earnings taxes.
In Japan, citizens must report any earnings from crypto scans as “other earnings,” with those in the lower tax bracket facing an 11% tax on their earnings. For taxpayers in the higher tax bracket, their income taxes can reach up to 50%. Campaigners have been advocating for Tokyo to change its stance for years, but Prime Minister Fumio Kishida has recently taken a pro-web3 stance. The secretary has expressed positive views and suggested revising tax laws and promoting NFT-based economic growth.
Consequently, a new corporation tax regime has been implemented, exempting corporations from paying taxes on their unrealized gains. This allows them to hold coins and benefit from their appreciation in value throughout the year, without having to sell them for fiat money.
The proposal from the Digital Society Promotion section regarding tax reform for the benefit of individual traders will be forwarded to the Political Affairs Research Council. If the council supports the proposal, it will be implemented in accordance with the Liberal Democratic Party’s policies. Subsequently, members of the House will be authorized to draft a bill and submit it to the National Diet.
Although the process of scheduling and organizing may be time-consuming, it should not hinder the development team. The LDP has held power in Japan since 1955 and currently holds 259 seats in the House of Representatives and 116 senatorial seats in the House of Councillors. The statement suggests that a tax reform venue for Japanese crypto traders is a matter of “when” rather than “if.”
Advocates of the proposal believe that Japan aims to be at the forefront of the web3 revolution. They also prioritize the adoption of blockchain technology in social projects. The suggested amendments include separating cryptocurrency capital gains tax from income tax and allowing traders to carry forward losses for up to three years. Additionally, there is a need to establish strict rules for crypto leverage trading, an ongoing issue in Japanese exchanges.