Japan is considering new changes to taxation laws regarding digital assets and trades. New proposals, yet to be considered or drafted into legislation by the government, could reduce capital gains taxes on different types of digital currency trades and introduce a brand new classification for digital assets.
Policymakers attended presentations on the proposals at the Digital Society Promotion Headquarters in Tokyo on March 6. They’re also calling for submissions on other opinions and suggested reforms to be included in its bill on such matters by the end of the month.
Despite being players in one of the world’s most lucrative markets, Japanese digital asset traders can be taxed heavily for their work. The country imposes sales taxes on digital asset sales at local exchanges, which also hits “crypto-to-crypto” trades that don’t involve interactions with the national currency (JPY).
At the meeting, the industry lobby group, the Japan Crypto Asset Business Association (JCBA), called for capital gains taxes on digital assets to be reduced to 20% and a 3-year carryover deduction for losses. It would like to remove all taxes on non-digital-to-fiat trades.
Furthermore, the JCBA asks for sub-classifications for different means of acquiring digital assets, e.g., by sales, trading, and via donations or inheritance.
The ruling Liberal Democratic Party’s (LDP) own Web3 Working Group presented its suggestions to position digital assets under the Financial Instruments and Exchange Act, but as something distinct from securities. This would allow the government to distinguish between companies issuing stocks/shares and technology companies looking for new innovations in Web3-related fields—that is, non-fungible tokens (NFTs), special-use assets, and in-app currencies.
Reactions to the announcements were welcoming, reflecting a strong desire to ease taxes while also expressing caution about getting too excited lest the proposals never make it into actual law.
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These proposals are related to other calls to alter the legal classification of digital assets, as reported last week. Digital assets are currently regarded as “payment methods” rather than assets, and a proposal from the local regulator, the Financial Services Agency (FSA), would also shift the legal classification to increase registration requirements for asset issuers.
Re-classifying digital assets, in that case, focused more on investor protection. Digital currency-related financial scams have proliferated in Japan as they gained more attention in mainstream discourse, just as has happened in most countries.
Japan has long intended to play a leading role in the next iteration of the internet. Its Ministry of Economy, Trade and Industry (METI) formed a “Web 3.0 Policy Office” in mid-2022 and proposed tax breaks for Web3-related blockchain businesses last year.
This is partly thanks to government members’ genuine interest in new technologies, particularly when financial innovation is involved. It also stems from concerns about a brain drain of business and technological talent from the country, which realizes it can earn higher salaries and face a much lighter taxation and regulatory burden in other countries.
In 2025, there may also be additional political motives to ease pressure on Web3 and blockchain-related projects. The LDP, which has held a parliamentary majority for all but a few years in the post-WW2 era, came close to losing power in last October’s elections and now governs as a minority. Holding 38 valuable crossbench votes is the Japan Innovation Party (“Isshin”), an Osaka-based group with a somewhat populist and libertarian-esque stance. Isshin has advocated for the use of blockchain technology to secure Japan’s public records.
The LDP established the new “Web3 Working Group” in December 2024 to consult with industry participants and other experts on new proposals and reforms. This group has promised to “continue the trajectory of many reforms” of the 2022 body and will “strive to strengthen Japan’s competitiveness in the rapidly expanding crypto economic zone.”
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Jon Southurst