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 of 55% to 20%, aligning it with traditional financial products like stocks. Many netizens believe that Japan’s current cryptocurrency tax system is overly harsh, and if the LDP’s proposal is passed, it would 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 regulatory reform draft for cryptocurrencies, aiming to separate cryptocurrencies from their current classification as “miscellaneous income” and incorporate them into a new asset class. According to this proposal, cryptocurrencies will no longer be classified under the Payment Services Act but will be regulated under the Financial Instruments and Exchange Act.
The LDP’s Digital Society Promotion Headquarters has announced a reform proposal for the Web3 Working Group. The proposal 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. Public opinions and suggestions on the reform proposal are being solicited until March 31. (For more details, refer to the WG blog… 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 and significantly lower the capital gains tax rate on cryptocurrency transactions from the current maximum of 55% to 20%, similar to the tax rates for traditional financial products like stocks. The so-called capital gains tax rate refers to the rate at which the government taxes the gains realized from the sale of capital assets (such as stocks, real estate, cryptocurrencies, etc.).
For example, if Xiao Ming buys some cryptocurrencies today for $1,000 and sells them for $1,500 a year later, his capital gain 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 ($500 at 55%).
If Japan levies a 20% capital gains tax on this profit, he would only need to pay $100 in taxes ($500 at 20%). Currently, Japan’s capital gains tax rate for cryptocurrencies is as high as 55%, which has diminished the attractiveness of cryptocurrency investment in Japan. According to the LDP’s draft, this reform will greatly promote the development of the cryptocurrency market, and it is undoubtedly a favorable policy for long-term and institutional investors. The draft also mentions that this reform will help enhance market transparency, protect investor rights, and pave the way for the potential introduction of spot cryptocurrency ETFs in the future.
Industry Reactions and Market Impacts
In Taiwan, there is currently no clear and independent legal regulation for the tax treatment of cryptocurrencies; however, according to existing tax laws, income generated from cryptocurrency transactions is still subject to taxation. Under the current income tax law, individuals trading cryptocurrencies are considered to generate “property transaction income,” which must be actively reported and included in comprehensive income tax for taxation. This means that if investors make profits from trading cryptocurrencies, that profit will be classified as income and subject to income tax.
The Japanese government’s proposal for cryptocurrency regulatory reform has sparked enthusiastic discussions within the industry. Most netizens believe that this reform will have a profound impact on the cryptocurrency market. Because Japan’s current cryptocurrency tax system is overly stringent, some investors have been hesitant to enter the market. If the LDP’s proposal passes smoothly, 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 instance, Sota Watanabe, CEO of the Web3 infrastructure company Startale, stated that this reform is a significant victory for the entire industry. He pointed out that cooperation between the government and industry leaders is yielding positive results, and this reform is expected to attract more domestic and foreign 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 deduction 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, with a deadline of March 31, 2025, after which the final draft will be submitted to the Financial Services Agency for review.
References: Cointelegraph, The Block