Petition for Reform of Tax Systems for Crypto Assets (FY2023)

Japan Blockchain Association (Location: Minato-ku, Tokyo. Representative Director: Yuzo Kano. Hereafter referred to as JBA.) submitted a petition for reform of tax systems for Crypto Assets to the government on Tuesday, November 15, 2022.

This petition seeks reforms to the tax system for crypto assets, which is the largest barrier to corporations operating web3 business in Japan and a disincentive for the public to actively own and use crypto assets.

JBA hopes that Japan will be recognized both domestically and internationally as a leading web3 country, and that the expansion of new web3 industries and economic blocs will greatly contribute to the future growth of the Japanese economy, which is under pressure to undergo a transformation.

Request 1: Elimination of accounting year-end tax on unrealized capital gains for corporations that issue and hold crypto assets

Use the book value of crypto assets (other than those intended for short-term trading purposes) held by corporations that issue or acquire crypto assets instead of taxation based on market value at the end of a given fiscal term. In particular, abolish the term-end unrealized capital gains tax on tokens issued in-house, which is a factor driving many companies out of Japan. This would in turn stop the brain drain of web3 talent overseas, and rapidly shore up a climate in Japan where web3 businesses can thrive.

Request 2: Introduction of self-assessed separate taxation, and carryforward deductions for losses

Change the taxation method for gains from crypto asset transactions from a tax on aggregate income to self-assessed separate taxation, and set the tax rate uniformly to 20%. Moreover, allow for losses realized in a given year to be carried over for three years starting from the year following the year in which the losses were incurred, deducting them from crypto asset income for the following year onwards. In addition, apply the same treatment to crypto asset derivative instruments. Furthermore, since it is difficult for crypto asset exchange operators, which frequently transfer crypto assets between overseas and domestic operators, to ascertain the trade price of the customer’s crypto assets, we request that a scheme for self-assessed separate taxation be implemented, rather than separate withholding tax at the source.

Request 3: Eliminate taxation when exchanging crypto assets with each other

When crypto assets are exchanged with each other, income tax is levied on profits generated each time they are exchanged. It is highly likely that the exchange of crypto assets will become the chief method used for borderless payments in the coming web3 economy, and given the wide variety of transactions that occur and the types of crypto assets to be exchanged, this makes tax calculation extremely complicated, which significantly hinders the convenience that should be inherent in crypto assets. In line with this, abolish the tax on exchanges between crypto assets.

JBA will continue its efforts to improve the environment for web3 promotion.