Japan’s Financial Regulator May Cut Crypto Tax, Encourage Investors to Engage with VDAs

Japan's Financial Services Agency (FSA) aims to promote treating cryptocurrencies akin to traditional assets such as stocks and gold. As part of this effort, the FSA has reduced tax rates on income generated from crypto activities. Corporate crypto holders will face slightly higher rates, while small-scale individual investors will benefit from comparatively lower taxes.

The FSA recently released an official paper in Japanese, outlining proposals intended to reform its overall tax regime for the fiscal year 2025. Japanese publication Coinpost explained the development saying that the Web3 industry in Japan has been calling for change in taxes.

At present, crypto generated earnings in Japan are taxed between 15 percent to 55 percent. In FY 2025 however, the authorities are planning to cut the tax rate to a flat 30 percent for corporate investors and 20 percent for individual investors.

The FSA is also working to finalise the extent to which virtual digital currencies (VDAs) can be treated as financial assets in terms of investment targets. Depending on this, Japan will either step into the crypto ETF game alongside the US and Canada or choose to stay out for the time being, the Coinpost report said.

In Japan, the number of crypto holders surged from 6.4 million in 2022 to 8.82 million in 2023, as per Statista. In July 2023, Japanese PM Fumio Kishida had promised the nationals that the country will make Web3 the new form of capitalism.

Soon after, Binance re-entered the Japanese market and Japanese e-commerce giant Mercari said it would open payments in BTC for over 20 million of its users.

In the backdrop of these developments, it seems natural that Japan is considering a reduction in crypto taxes to direct the investor community to engage with VDAs and participate in stabilising the sector and its growth.

Japan's discussions about lowering crypto taxes have garnered praise from the Indian Web3 community, which is also advocating for crypto tax reforms.

In India, crypto gains are currently taxed at 30 percent, with an additional one percent TDS on each crypto transaction. These tax regulations were implemented on April 1, 2022. Members of India's crypto community have been advocating for a revision, urging the finance ministry to reduce the TDS rate to 0.01 percent.

Unlike Japan's financial authorities, the Indian authorities have remained tight-lipped about the requests from the Web3 community.