A proposal to exempt cryptocurrency businesses that issue their own tokens from paying corporate tax on unrealized gains was accepted by Japan’s ruling Liberal Democratic Party (LDP) tax committee, a party politician said on Friday.
The proposal, according to Akihisa Shiozaki, secretary-general of the party’s Web3 project team, will be incorporated into the annual tax policy guidelines that are presented to the nation’s parliament in January 2023 and will take effect by April 1, 2023.
If their tokens are listed on an active market, token issuers are subject to a tax rate of around 35% on unrealized profits for tokens that they possess under the present corporate tax regulations. At the end of the taxation period, holdings are taxed according to their market value. As a result of this tax, project founders were compelled to establish their businesses outside of Japan.
Other tax reform proposals made by industry associations included taxing cryptocurrency gains at the same rate as stock gains and charging people with taxes only when they convert their cryptocurrency gains to fiat money. These are unlikely to be approved this year and will probably be discussed once more during the LDP’s tax debates the following winter.
The Web3 project team released an outline of an interim policy proposal on Thursday that included the suggestion to abolish the tax on paper gains.
A law on decentralized autonomous organizations (DAO) of the LLC type was also suggested, along with backing for the creation of stablecoins pegged to the yen without any government authorisations, governance changes at the organization responsible for token screening in Japan, and auditing guidelines for cryptocurrency firms.
Japan unveiled a legislative framework to govern stablecoins in June of this year, but it did not address algorithmic or asset-backed stablecoins that already exist.
The Financial Service Agency (FSA), however, advised curbing the algorithmic backing of stablecoins in a document released on December 7. The FSA is a government organisation in Japan that oversees the banking, securities, exchange, and insurance industries in order to maintain the stability of the country’s financial system.
In July, Masaaki Taira, a member of the government’s Liberal Democratic Party, raised the issue of high taxes. At the time, two of the nation’s most powerful lobbying groups, the Japan Crypto Asset Business Association (JCBA) and the Japan Virtual and Crypto Assets Exchange Association (JVCEA), were reportedly working on a similar proposal to submit to the Financial Services Agency of Japan (FSA).
Japan formally recognised cryptocurrencies as legal tender—that is, as a form of payment—in April 2017. The nation’s watchdog FSA tightened the rules for cryptocurrency exchanges in 2019 after the country fell victim to the Coincheck breach. This hack was among the greatest at the time due to the theft of more than $500 million in cryptocurrencies. Since then, all bitcoin exchange companies have had to adhere to national anti-money laundering and financial terrorism rules.
On the other hand, the regulatory framework in Japan distinguishes between “crypto assets” and “digital-money type stablecoins” and takes a separate stance with regard to the relevant rules.
The fall of Terra tokens and the algorithmic stablecoin Terra USD (UST), which lost its 1:1 value to the US dollar in early May, were cited as reasons for the current stablecoin legislation.
Japan is not the only nation dedicated to regulating the stablecoin, though. Earlier this year, a number of nations—including Singapore, the United Kingdom, the United States, and others—expressed their intentions to regulate stablecoin.