The Japanese financial regulator, the FSA, has rolled out plans to change the country’s tax regulations. The new regulations could potentially reduce taxes on crypto assets in 2025.

On August 30, the Financial Services Agency filed a tax reform request addressing its views on crypto assets, advocating for them to be treated like traditional financial assets.

The FSA wrote, “Regarding the tax treatment of cryptocurrency transactions, cryptocurrency should be treated as a financial asset that should be an investment target for the public. It is necessary to consider this issue from the perspective of whether it should be treated as such.”

Crypto advocates push for lower tax rates and relief measures

Before the FSA’s proposal, crypto advocates had already shared their sentiments on the current tax code, consistently asking for revisions for quite some time. The Japan Blockchain Association, for instance, first formally requested the government for crypto tax cuts way back in 2023. 

On July 28, 2023, the pro-crypto lobbying group called out crypto taxes as the largest hindrance to crypto-based Web3 businesses and even suggested changes that could be made.

This year, on July 19, the association filed another tax reform request for fiscal year 2025, proposing a flat 20% tax rate for crypto and a three-year loss carryover deduction. They even pushed for tax removal when exchanging cryptocurrencies and tax relief on crypto donations.

Japan taxes crypto profits at rates as high as 55%

The Japanese government considers any crypto earning above 200,000 Japanese yen “miscellaneous income,” which can result in tax rates as high as 55%. The country also taxes crypto stock profits at a flat 20%. 

Crypto traders are also in for a 10% inhabitant tax on their profits gains, bringing cumulative tax rates between 15%-55%. 

However, these taxes have yet to be warmly accepted by Japanese exchanges, causing some of them to underreport their earnings. However, the Japanese government has noted this persisting trend, promising penalties, fines, and criminal charges for noncompliance with crypto tax reporting. 

The government even increased the number of audits to find non-compliant culprits. In 2019, about 50 individuals and 30 companies in Japan were found concealing their actual crypto profits. It also found two companies to be transferring millions of yen of virtual currencies under the guise of “consulting fees,” only to return the cryptocurrency bulk to the sender. The fees could then be written off,  deducting the income tax amount.

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