This reform includes significant changes, especially regarding the taxation of crypto assets, and envisages regulations that may reduce the tax rates of these assets.

In its tax reform request made on August 30, the FSA emphasized that crypto assets should be treated like traditional financial assets that the public can invest in. FSA pointed out the importance of considering cryptocurrencies as financial assets and stated that an evaluation should be made on this issue.

This proposal by the FSA is seen as an important step for cryptocurrency investors in Japan. Currently, cryptocurrency earnings in Japan are taxed at rates ranging from 15% to 55%.

According to crypto accounting firm TokenTax, the top tax rate of 55% can be applied to earnings exceeding 200,000 Japanese yen (about $1,377). However, this rate may vary depending on individuals’ income tax brackets.

In contrast, gains from stock trading are taxed at just 20% at the highest level. This shows that crypto investors face a higher tax burden compared to stock investors.

The current tax system of cryptocurrencies creates a challenging environment for investors. Specifically, institutional crypto holders are forced to pay a 30% flat tax on their holdings, even if they do not make a profit at the end of the year.

This situation makes cryptocurrency investments more disadvantageous compared to other financial assets. Crypto industry advocates and investors have long argued that this tax burden should be eased.

The tax reform process in Japan begins with government ministries presenting tax reform demands to the ruling party. These requests are then forwarded to the tax system research committee and evaluated by the country’s national assembly.

The reform can only become law if it is approved by both houses of the Japanese government, the House of Representatives and the House of Advisors. Therefore, the tax reform process can be quite complex and time-consuming.

Crypto industry advocates in Japan have been pushing hard for several years to overhaul the national tax regime for digital assets. The Japan Blockchain Association, a pro-crypto lobby group, filed a formal application with the government in 2023, requesting that tax rates on crypto assets be reduced.

The group also submitted its demands for tax reform on crypto assets for fiscal year 2025 on July 19. These demands included proposals such as a 20% flat tax rate and a three-year loss carry allowance. The aim was to stimulate growth in the crypto sector and attract investors to this space.

However, despite these efforts, the crypto industry in Japan still faces major challenges due to current tax regulations. The requests made to date have not resulted in any policy changes in the sector.

While crypto industry advocates are waiting for the Japanese government to take action on this issue, investors are also patiently waiting for reforms to ease the tax burden. More competitive taxation of crypto assets could make a significant contribution to the growth of the digital asset sector in Japan. However, whether this process will be successful or not will depend on the decisions made by the government.