June 23, 2024

Japan Cabinet Nods to End Taxation on Unrealized Crypto Gains, Paving the Way for Web3 Growth


In a significant move likely to reshape the landscape of Japan’s burgeoning Web3 industry, the Japanese cabinet has approved a proposal by the ruling Liberal Democratic Party to eliminate taxation on unrealized gains from cryptocurrency. The proposal, slated for debate in the Diet, Japan’s parliament, aims to terminate corporate taxation on the difference between the market and book values of crypto assets issued by other companies.

Should the proposal become law following the approval on December 22, it would address a longstanding inconsistency in the tax treatment of third-party issued crypto assets compared to those issued by individual holders. The latter group, notably, is currently not subjected to taxation on mark-to-market values. This tax distinction has been identified as a hindrance to the growth of Web3 businesses in the country.

Prime Minister Fumio Kishida’s government has been actively seeking input from industry associations, including the Japan Crypto Asset Business Association (JCBA) and Japan Blockchain Association. These organizations have been instrumental in providing insights on fostering a conducive environment for the development of the crypto industry, considered a key pillar of economic reform.

The move to end taxation on unrealized crypto gains is a departure from the traditional policymaking process in Japan, where the bureaucracy typically takes the lead. This shift, with politicians at the forefront of policy development, underscores the government’s commitment to positioning Japan as a hub for Web3 innovation.

Gaku Saito, Chairman of the JCBA’s tax review committee, highlighted the challenges faced by Web3 companies in Japan, leading some to relocate overseas. The tax burden on unrealized gains, even before profitability, has been a deterrent for these companies. Saito believes that other countries should consider following Japan’s lead to create more crypto-friendly environments, ultimately benefiting governments through taxes on realized gains.

The proposal, once debated and potentially enshrined into law, is anticipated to remove a significant barrier for Web3 businesses, fostering an environment conducive to innovation and growth. The outcome will likely be closely monitored by the global crypto community as Japan positions itself as a forward-thinking player in the evolving landscape of digital assets and blockchain technology.

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