Japan Seeks to Overhaul Crypto Tax Scheme
Japan is looking at standardizing the tax system for cryptocurrency-related transactions in a bid to streamline related tax processes for virtual currencies, according to the country’s top financial official.
“The profits gained by virtual currency transactions should be changed from current ‘miscellaneous income’ to ‘declaration separate taxation,’” Taro Aso, Japan’s Deputy Prime Minister and Minister of Finance, said at the Upper House budget committee meeting.
At present, all earnings from cryptocurrency-related transactions are taxed as miscellaneous income.
The National Tax Agency (NTA) explained the Asian country has seven income tax categories, with the tax rates ranging between 5 percent and 45 percent depending on earnings.
Aside from progressive tax rates, inhabitant taxes, with the rate of 10 percent, are levied by prefectural and municipal governments.
“The maximum income tax rate now stands at as high as 55 percent including 10 percentage points for the local individual inhabitant tax,” the Policy Research Institute of the Japanese Ministry of Finance said:
Cryptocurrency traders could pay up to 55 percent in capital tax gains based on existing tax rules.
“Miscellaneous income is subject to comprehensive taxation, and the tax rate is decided according to the amount combined with other income such as salary income,” accounting software company Freee said.
In the event the proposed tax law takes effect, crypto profits will be taxed at a uniform rate, similar to those enjoyed by stock traders.
“Capital gains from sales of certain securities (including shares/equity interest in corporations, warrant bonds, etc.) are taxed separately from other sources of income at a flat rate of 20.315% (i.e. 15.315% national tax and 5% local inhabitant’s tax),” Pwc explained.
Several industry participants have lambasted the tax treatment on their gains since the Japanese government’s pronouncement that their earnings from virtual currencies are taxed as miscellaneous income. Some 11,786 of these players signed a petition on Change.org urging the NTA to tax crypto profits akin to stocks.
Previous news reports had said about 331 taxpayers with miscellaneous incomes of 100 million Japanese yen ($914,000) and over from sources other than public pensions in the nation declared income from cryptocurrencies.
“It is the first time that the agency announced the result of the counting of virtual currency related declarations,” the tax agency had stated.
“The number of taxpayers with miscellaneous incomes of 100 million yen and over from sources other than public pensions jumped from the previous year’s 238 to 549,” according to Jiji Press. Of these 549 people, more than 60% or 331 of them “gained income from cryptocurrency transactions,” the NTA reported, referring to last year’s record.
Aso, the 59th Prime Minister of Japan, indicated the change. He also implied his apprehension that people will understand the reason for the change.
“From the viewpoint of the international nature of virtual currency uncertainty and tax fairness, etc… public understanding can be obtained” for the tax rate “equal to a uniform rate of 20 percent,” he added.