Japan’s stringent policies regarding cryptocurrency taxation are affecting both traders and investors in the digital asset space. Recent research conducted with a diverse group of 1,500 adults revealed that only a small 13% of respondents currently invest in cryptocurrencies like Bitcoin or Ethereum. Despite potential interest, many individuals are hesitant to invest further due to the current tax implications imposed by the government.

Support for Simplified Taxation

The Japan Blockchain Association (JBA) has highlighted that a significant 84% of current crypto holders are optimistic about purchasing more if tax on their profits was simplified to a flat rate of just 20%. Additionally, a notable 12% of non-holders expressed willingness to begin investing should a similar tax framework be established.

Currently, crypto earnings can be taxed at intimidating rates, up to 55%, a stark contrast to the 10-20% range applicable to stock investments. The JBA advocates for reclassifying cryptocurrencies under capital gains, aiming to enhance market activity on local exchanges.

Desire for Streamlined Tax Processes

The majority of participants in the survey expressed a preference for having taxes deducted directly at the point of sale, rather than managing separate tax documentation. A substantial 75% of respondents indicated this would make the process easier.

The JBA has suggested that the government allow flexibility, enabling traders to opt for taxation either at the point of sale or during their annual tax returns, which could considerably enhance the usability for both casual and seasoned investors.

Moreover, the study went beyond just taxation and into the reasons why many still refrain from engaging with cryptocurrencies. Notably, only 8% attributed their reluctance to high taxes, while the majority, 61%, reported a lack of understanding of the digital asset landscape.

The demographics of participants revealed a makeup of 60% male and 40% female respondents, with an average age of 38. The group included 5.3% students and 213 unemployed individuals.

Financial Services Agency’s New Directions

Recent updates indicate that the Financial Services Agency (FSA) is considering significant reforms that may allow bitcoin and other cryptocurrencies to fall under the Financial Instruments and Exchange Act.

If such a transition occurs, it could result in the official categorization of digital assets as financial products, potentially leading to a unified 20% tax structure by next year. Reuters have noted that exchanges like bitFlyer are already observing that Ethereum trading constitutes nearly half of all transactions. This shift could drastically alter Japan’s crypto landscape by simplifying trading processes and attracting a larger investor base.

Featured image from Travel+Leisure, chart from TradingView