Japan’s Financial Services Agency (FSA) has set the stage for potential changes in crypto taxation, a big change in the country’s approach to dealing with them. For the first time, the agency’s tax reform requests for fiscal year 2025 explicitly addressed the tax treatment of crypto transactions.
Recently, the FSA issued its tax reform proposals. It presents crypto assets in the context of a national strategy to double asset management income as part of the country’s economic growth. The document posits that it is imperative to revisit the classification of virtual currencies as financial assets for investment purposes. Thus, it may lead to a more favorable tax policy.
Pressure for lower crypto tax rate grows
This development comes amid growing pressures from investors and industry groups to overhaul the current tax regime. It imposes a max rate of 55% for the cryptocurrency gains. Many argue that the tax should be the same as the tax on financial instruments. It should be a flat 20%.
On the one hand, the FSA’s proposals do not provide a list of changes. On the other hand, the fact that virtual currencies are included in the reform requests. This reflects a significant change in regulatory thinking.
The FSA’s document also points out opportunities to increase the scope of loss offset for financial products like derivative transactions and deposits. This move aims to create a more diverse and accessible investment avenue for Japanese citizens. It can probably include cryptocurrencies in this context.
At the latest WebX conference, the Deputy Secretary-General of the Liberal Democratic Party, Masanobu Ogura, elaborated on the three vital aspects of moving to separate reporting taxation.
It includes a reasonable rationale, pleasing tax revenue forecasts, and public awareness of crypto role in asset formation. Ogura stressed the necessity of crediting virtual currency investments as one of the viable means of personal wealth accumulation.
The FSA’s position regarding the designation of virtual currencies as investment instruments may directly affect the future of crypto ETFs in Japan. Their legalization may be the next step. Nevertheless, FSA Commissioner Hideki Ito has warned that the use of virtual currencies may not be compatible with the purpose of investment trusts, which are designed for long-term and stable asset building.
