Japan to potentially lower capital gains tax on crypto in regulatory review

Reclassifying digital assets under the Financial Instruments and Exchange Act could significantly reduce the current 55% tax rate on crypto gains.

Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.

Japan’s Financial Services Agency (FSA) is poised to reassess its crypto regulations, potentially reducing taxes on crypto gains and reclassifying digital assets in a bid to foster a more favorable investment environment by 2025, Bloomberg News reported Sept. 25.

The FSA’s upcoming review, which will continue through the winter, will determine whether the existing framework under the Payments Act adequately reflects the evolving role of cryptocurrencies.

Regulatory review

According to the report, the agency may shift the classification of digital assets to fall under the Financial Instruments and Exchange Act. This change could impose stricter investment regulations while also potentially reducing the tax burden on crypto-related profits.

Such a change by the FSA could lead to a significant reduction in the tax rate on crypto gains, which currently reaches as high as 55%. If reclassified as financial instruments, digital assets could be taxed at around 20%, aligning them with stocks and other financial assets.

The local industry has long argued that the high taxation has hindered growth and believes relief in this area will lead to significant growth as it encourages investing.

In addition to tax cuts, the review may also result in the approval of exchange-traded funds (ETFs) containing digital tokens, which would further integrate cryptocurrencies into Japan’s broader financial market.

For years, the FSA has sought to balance promoting innovation in the digital asset space with the need to protect investors. This latest review signals a continued effort to find a middle ground that fosters growth while ensuring regulatory safeguards remain in place.

Balancing innovation and protection

Japan has been actively working to strengthen its digital asset sector, with several firms exploring the potential of blockchain technology and stablecoins. A 2022 regulatory overhaul required crypto exchanges to obtain licenses, attracting interest from prominent companies like Bitget and Bybit.

However, future policies may be influenced by the expected transition of leadership from Prime Minister Fumio Kishida to Shigeru Ishiba. Kishida has been a supporter of Web3 and blockchain technologies, and any shift in leadership may alter the course of crypto regulations in Japan.

In addition to the FSA’s ongoing review, Japan has recently taken steps to support the local blockchain ecosystem, including allowing investment firms to invest in crypto.

Despite uncertainties, the digital asset market in Japan has seen a notable uptick in trading volumes. Monthly trading volumes in 2024 surged to nearly $10 billion, compared to $6.2 billion in 2023, driven by a rally in Bitcoin and other cryptocurrencies, according to CCData.

Mentioned in this article