Japan plans to lower crypto asset tax rates to boost Web3 industry

Source: TaxDAO 

The tax system research committee of the Liberal Democratic Party and the Komeito Party of Japan recently clarified the outline of the 2025 tax system reform, proposing to review the tax system of crypto assets (virtual currency) in order to pave the way for the implementation of separate taxation. According to the reform proposal, the tax rate on crypto assets may be reduced to 20% in the future, while allowing profit and loss to be calculated. However, the implementation of the reform still requires necessary legal preparations, including investor protection, transaction suitability requirements, and the obligation of exchanges to report transaction contents to tax authorities.  

Member of the Liberal Democratic Party Digital Headquarters, Takuya Hirai, has submitted an emergency proposal to the Financial Services Agency, suggesting that the income from crypto asset transactions be included in the scope of reporting separate taxation as soon as possible, and that the regulatory framework be improved to ensure that crypto assets play a role in promoting the national economy. Analysts pointed out that this will help attract more domestic and foreign companies and investors, promote the development of Japan's Web3 industry and enhance its international competitiveness. This move indicates that the Japanese government is seriously considering improving the tax system for crypto assets to enhance the international competitiveness of the Web3 field. Currently, Japan classifies gains from crypto asset transactions as "miscellaneous income" with a tax rate of up to 55%. This high tax rate, the taxation of transactions between cryptocurrencies, and the inability to calculate profits and losses across years are considered to be the main reasons that hinder innovation in the Web3 field, causing a large number of talents and start-ups to flow overseas. Although the reform plan is still in the "review stage", the explicit mention of this issue in the tax reform outline shows that Japan has taken an important step in improving the tax system for crypto assets. TaxDAO's brief comment: Japan's cryptocurrency tax policy can be described as harsh. Japan's current policy classifies crypto trading income as "miscellaneous income" with a maximum tax rate of up to 55%. In addition, exchanges between cryptocurrencies are also taxed, and profits and losses are not allowed to be calculated across years. These regulations are undoubtedly a heavy burden for individual crypto asset investors and companies. Japan's tax reform plan proposes to explore the "separate taxation" of crypto trading income. In simple terms, it means that crypto asset trading income will be treated separately, and a fixed tax rate (estimated to be around 20%) may be applied, and profits and losses across years will be allowed to be calculated. This is good news for investors to reduce their burden, and for companies it means greater financial flexibility and more predictable tax planning. In a horizontal comparison, Japan has missed a lot of opportunities in the Web3 track. On the other hand, Singapore has attracted a large number of Web3 projects and funds due to its zero capital gains tax policy, becoming a popular destination for global Web3 innovation. Japan obviously hopes to enhance its competitiveness in the Web3 field by adjusting its tax policy to attract projects and talents again. In fact, this tax reform is not the first effort made by the Japanese government to develop the Web3 industry. In August 2024, not long ago, Japan held the "Web X" conference, and Japanese Prime Minister Fumio Kishida spoke as a special speaker, which generated a good response. If this tax reform plan is implemented, its effect will be immediate. On the one hand, local companies, especially small start-ups, will benefit the most, because the reduction in tax burden will allow these companies to have more resources to invest in innovation and operations, and enhance market competitiveness. On the other hand, this tax reform plan will improve Japan's image among international investors, attract more overseas Web3 projects to choose Japan as an Asian base, and may even set off a round of crypto asset craze in Japan. However, the tax reform still faces some challenges before it is implemented. For example, this tax reform also requires a series of supporting measures to support it, such as improving investor protection mechanisms, strengthening tax transparency, and improving transaction compliance. For example, the tax reform may reduce tax revenue in the short term, which may cause concerns among the public and relevant departments. In addition, the pace of Japan's policy implementation is relatively conservative, and whether it can truly seize the global window period of the crypto industry and even the entire Web3 industry remains unknown.  

In the future, when we look back, this tax reform may become an important turning point for Japan's Web3 industry. This is not only an incentive for companies and investors, but also a statement: Japan does not want to continue to miss opportunities, but hopes to embrace the Web3 industry more actively. If it can really fulfill its promise, perhaps in the next bull market, Japan will become the focus of global investors.