Japan’s Financial Services Agency (FSA) has unveiled a significant proposal to overhaul the country’s tax code, set to take effect in the 2025 fiscal year. A key aspect of this reform is the potential reduction of tax rates on cryptocurrency assets, which could bring them more in line with traditional financial assets.

In a tax reform request dated August 30, the FSA emphasized the importance of treating cryptocurrencies as investment assets, similar to stocks or bonds. The agency stated, “Cryptocurrency should be recognized as a financial asset that the public can invest in, and it is necessary to evaluate its tax treatment from this perspective.”

Current Crypto Tax Rates and Industry Concerns

At present, Japan’s tax code classifies profits from cryptocurrency trading as “miscellaneous income,” which can lead to tax rates ranging from 15% to 55%. The highest rate applies to earnings exceeding 200,000 Japanese yen (approximately $1,377), but the specific rate depends on the taxpayer’s overall income bracket. In stark contrast, profits from stock trading are taxed at a flat rate of 20%, even at the highest levels of income.

For corporations holding cryptocurrency, the situation is also challenging. They are required to pay a flat 30% tax on their crypto holdings at the end of the financial year, regardless of whether they have realized any gains through sales. This has led to calls from the crypto industry for a more favorable tax regime that supports growth and innovation.

Ongoing Efforts to Revise Crypto Taxation

For several years, advocates within Japan’s crypto industry have been pushing for a revision of the tax laws governing digital assets. The Japan Blockchain Association, a prominent pro-crypto lobbying group, has been at the forefront of these efforts. In 2023, they formally requested the government to lower the tax rate on cryptocurrencies. Additionally, on July 19, the association submitted another request for tax reforms specifically for the 2025 fiscal year. Their proposal included a flat 20% tax rate for cryptocurrencies and the introduction of a three-year loss carryover deduction, aimed at easing the tax burden on investors and fostering growth in the sector.

Despite these persistent efforts, the government has yet to implement any changes to the tax code concerning cryptocurrencies. The FSA’s recent proposal is a promising step forward, but it will need to pass through several stages of review and approval by both houses of Japan’s national legislature before becoming law. The crypto community in Japan remains hopeful that these proposed changes will eventually lead to a more supportive environment for digital assets.