In a compelling plea for fiscal reform, an assembly of Japanese cryptocurrency exchanges and blockchain enterprises has urged the government to amend the current tax regulations governing digital assets. This appeal, articulated through an official release by the Japan Blockchain Association (JBA), seeks to influence policy changes ahead of the Financial Year 2025.

High Tax Rates Stifling Asset Preservation

The JBA contends that the prevailing elevated tax rates on cryptocurrency gains are significantly impeding Japanese citizens’ ability to preserve their assets. They argue for the alignment of crypto tax rates with those applied to conventional financial assets, such as publicly traded stocks.

Read more: India’s Crypto Tax Reduction Unlikely in Upcoming Budget

Unified Call for Immediate Tax Reform

Representing Japan’s leading blockchain firms and crypto initiatives, including the exchange bitFlyer, the JBA has intensified its call for the government to reform the nation’s stringent tax laws. They stress the urgency of introducing new tax measures in the upcoming fiscal year, highlighting the overly complex nature of existing regulations.

The association criticizes the current tax framework for crypto-related transactions, pointing to the sliding scale system as a deterrent for potential investors. Unlike many other countries where a flat-rate capital gains tax is applied, Japanese law mandates that traders declare token-derived profits under the “other income” category on their tax returns. Consequently, the highest earners may face tax rates up to 55% on their crypto earnings, a figure markedly higher than those in other leading economies.

Negative Impact on Startups and Innovation

The JBA has already succeeded in advocating for tax reforms affecting corporations, relieving Japanese companies from taxes on unrealized crypto holdings. However, the impact on private citizens remains a concern. Some lawmakers have shown interest in revising tax rates for individuals, leaning towards a capital gains tax model.

The JBA underscores that the current crypto tax laws adversely affect Japanese companies issuing cryptoassets and web3 startups. They warn that without reform, Japan risks losing its competitive edge in the burgeoning web3 sector. The association foresees a continued exodus of talent and startups seeking more favorable regulatory environments abroad.

Specific Reforms Proposed by the JBA

To address these issues, the JBA has made several specific recommendations:

• Separate Self-Assessment Tax Systems: Exclude crypto from the “other income” sections of tax declarations.
• Flat 20% Tax Rate on Crypto Profits: Standardize the tax rate to encourage investment.
• Carry Forward Losses: Allow traders to offset losses against future crypto-related income for up to three years.
• Abolish Tax on Crypto-to-Crypto Transactions: Simplify the tax process and reduce barriers to trading.
• Tax-Free or Tax-Deductible Crypto Donations: Encourage philanthropic use of digital assets.
• Future Reforms for Crypto Derivatives: Consider further adjustments to tax rules governing derivative transactions.