What Happened?
The ruling Liberal Democratic Party (LDP) of Japan plans to classify cryptocurrencies as a completely new asset class and significantly reduce the capital gains tax on cryptocurrencies from the current maximum rate of 55% to 20%, aligning it with traditional financial products like stocks. Many netizens believe that Japan’s current cryptocurrency tax system is overly stringent, and if the LDP’s proposal is approved, it will make Japan one of the leading markets for cryptocurrency development globally.
LDP Draft Bill: Cryptocurrencies to Become a New Asset Class, Capital Gains Tax Reduced to 20%
Recently, Japan’s ruling party, the LDP, proposed a comprehensive reform of cryptocurrency regulations, intending to detach cryptocurrencies from the current classification of “miscellaneous income” and incorporate them into a new asset category. According to this proposal, cryptocurrencies will no longer be classified under the Payment Services Act but will instead be regulated under the Financial Instruments and Exchange Act.
The draft reform proposal from the LDP’s Digital Society Promotion Headquarters has been made public through the web3WG. It positions cryptocurrencies as a new asset class distinct from securities under the Financial Instruments and Exchange Act, aiming to achieve market development, investor protection, and separate taxation. Furthermore, public opinions and suggestions regarding the reform proposal are being solicited until March 31. (For more information, see the WG blog below…pic.twitter.com/CEc1f9wiPe— Akihisa Shiozaki 【Member of the House of Representatives, Ehime 1st District】 (@AkihisaShiozaki) March 6, 2025)
In simple terms, Japan will adopt clearer and more favorable regulatory management for cryptocurrencies, significantly reducing the capital gains tax rate on cryptocurrency transactions from the current maximum of 55% to 20%, similar to the tax rate on traditional financial products like stocks. The so-called capital gains tax rate refers to the tax rate that the government levies on the profits obtained from the sale of capital assets (such as stocks, real estate, cryptocurrencies, etc.).
For instance, if Xiao Ming buys some cryptocurrencies today for $1,000 and sells them a year later for $1,500, his capital gains would be $500 ($1,500 – $1,000). If Japan levies a 55% capital gains tax on this profit, Xiao Ming would have to pay $275 in taxes (55% of $500). Conversely, if Japan imposes a 20% capital gains tax, he would only need to pay $100 in taxes (20% of $500). Currently, Japan’s tax rate on cryptocurrencies is as high as 55%, which has diminished the attractiveness of cryptocurrency investments in Japan. According to the LDP’s draft, this reform will greatly promote the development of the cryptocurrency market, especially for long-term and institutional investors, which is undoubtedly a favorable policy. The draft also mentions that this reform will help improve market transparency, protect investor rights, and lay the groundwork for the potential introduction of spot cryptocurrency ETFs in the future.
Industry Response and Market Implications
In Taiwan, there is currently no clear and independent legal regulation concerning the taxation of cryptocurrencies, but under existing tax laws, profits generated from cryptocurrency transactions are still subject to taxation. According to current income tax law, income generated from the buying and selling of cryptocurrencies by individuals is considered “property trading income” and must be actively reported, included in comprehensive income tax for taxation. This means that if investors profit from buying and selling cryptocurrencies, that profit will be regarded as income, subject to income tax.
The Japanese government’s proposal for cryptocurrency regulatory reform has sparked lively discussions in the industry. Most netizens believe that this reform will have a profound impact on the cryptocurrency market. Given that Japan’s current cryptocurrency tax system is too harsh, it has deterred some investors from entering the cryptocurrency space. If the LDP’s proposal successfully passes, it could position Japan as one of the leading markets for cryptocurrency development globally. Leaders in Japan’s digital asset industry have also expressed support for this proposal. For example, Sota Watanabe, CEO of the Web3 infrastructure firm Startale, stated that this reform represents a significant victory for the entire industry. He pointed out that the collaboration between the government and industry leaders is yielding positive results, and he anticipates that this reform will attract more domestic and international investors to the Japanese market.
Today is a big day for Japan. The ruling party proposed to regulate crypto with a new framework under the Financial Instruments and Exchange Act. If approved this year, likely crypto ETFs and a tax reduction from up to 55% to 20% will come. I am 100% sure more Japanese people will come on-chain.— Sota Watanabe (@WatanabeSota) March 6, 2025
This proposal is currently open for public comment and will close on March 31, 2025, with the final draft submitted to the Financial Services Agency for review.
Reference: cointelegraph, the block