Japanese Prime Minister Reportedly Considering Crypto Tax Reform
The Prime Minister of Japan, Fumio Kishida, recently hinted that an overhaul in the current tax regime of the country with regards to cryptocurrencies might be in the works, in the country’s latest bid to foster Web3 startups and businesses. This has been a much-awaited announcement, with the current system coming under repeated and strong criticism over the past few months.
Addressing the Parliament, Kishida stated that he believes Web3 to be a crucial component in ensuring a high degree of economic growth for the country. At the same time, he also suggested that he might finally be coming around to passing pro-business legal reform that would make it more attractive for Web3 businesses and projects to set up base in Japan. Doing so would boost the Japanese economy, bringing back a lot of the talent that has been forced overseas through the current suite of policies.
During his address, the Prime Minister referred to Web3 offerings such as NFTs, cryptocurrencies, and the Metaverse as emerging digital services, saying that he will aim for them to become a major part of the Japanese economy. Furthermore, he has said that the Web3 environment is catching on across the world, and he plans for Japan to promote this economic environment from a political standpoint, by making it as easy as possible for such emerging technologies to grow and prosper in Japan.
Earlier UK Visit With Web3 Investors
Earlier this month, Kishida had visited the United Kingdom, where he spoke with British investors in Web3 technologies about how institutional reforms could be used for creating an environment to boost the growth of such technologies. He also spoke at length about Web3 infrastructure services, focussing on how these could affect existing technologies, both in the private and public sphere.
This meeting seems to have been the game-changer since it was after this meeting that Kishida said he was convinced of the power and potential of Web3. He also said that he was planning to take steps that would foster new Web3 startups in Japan, pledging “support” for any such companies that were aiming to get overseas capital in the form of investments. His ultimate aim is to increase the institutional inflow of cash into Japanese Web3 startups, transforming Japan into a hub for Web3 innovation.
In order to do this effectively, he also plans to launch startup accelerators to support newer businesses that are working in the Web3 space. While the accelerators will primarily aim at helping such projects by providing them with support and a platform from where they could begin to woo foreign capital, they could also possibly provide public capital backing for these projects.
Criticism of the Current Tax System
In the past, calls for reform in the existing crypto tax system have been echoed by forces on both sides of the political spectrum. While the biggest critic of the current system has been the Leader of the Democratic Party for the People Yuchiro Tamaki, several members of the ruling party have come out in support of reform too. This includes positive action to promote a culture of Web3 entrepreneurship, but more importantly, calls for a reform of tax laws that currently classify earnings made from cryptocurrencies as miscellaneous income. Reclassifying them as capital gains and subjecting them to the capital gains tax rates would result in them being taxed at a flat rate, and therefore increase the amount of capital flowing into these markets from Japanese investors.
Critics have said that the harsh suite of policies enacted by previous Prime Minsters has been a key factor in forcing the majority of Japanese Web3 talent overseas to countries where such endeavors are supported. Tamaki has also recently called for the government to make further tax concessions for companies based in Japan that hold or issue cryptocurrencies or Web3 assets.
Additionally, Tamaki demanded the inclusion of another caveat in the current tax policy, wherein individuals and businesses would only be taxed on their cryptocurrency gains when they traded their assets for fiat and realized profits. This is in contrast to the current system, where gains are taxed as miscellaneous income at the end of every year whether the profits have been realized or not, a policy that does not apply to the equity markets or any other form of capital markets. While Kishida has not definitively stated that this would be implemented, he said that the proposal would be considered carefully.
Tamaki also took to Twitter, saying that Kishida, along with the Japanese Minister of Finance Shunichi Suzuki, has discussed the reforms with him and is working collaboratively towards their common goal: a more prosperous Japanese economy. Kishida also agreed with Tamaki’s tax reform ideas stating that he believed it would provide “significant opportunities for Japan”. Tamaki said that the PM seemed “surprisingly positive” about the idea of reforming the current system.
The move would be significant for Japan, coming at a time when most other advanced nations have already begun taxing profits made from issuing or holding cryptocurrencies at a flat rate as capital gains.