[NEWS] Japan Association of New Economy proposes tax reform for crypto assets

The Japan Association of New Economy announced its tax reform proposal for 2025 on September 13th.

The aim is to lower tax rates, promote the revitalization of the Japanese economy, and ultimately increase tax revenue to link it to domestic investment.

The Japan Association of New Economy has set three pillars to realize a "virtuous cycle of tax and growth."

1. "Promotion of domestic investment" = In addition to attracting investment from both within and outside Japan to Japan and revitalizing the economy, we will provide tax support to encourage the creation of new industries such as AI and crypto assets.
2. "Investment in people" = Strengthening the tax system to promote wage increases while increasing labor market liquidity and securing highly skilled human resources from both within and outside Japan.
3. "Support for startups and improving productivity" = Through research and development, promotion of startups, digitalization, etc., we aim to promote innovation and raise the productivity of the entire economy.

Specific measures include lowering the corporate tax, income tax, and inheritance tax rates, reviewing local financial resources, creating a tax system to strengthen the development and promotion of AI, reviewing the tax system to attract people, knowledge, and money from overseas, adapting to the cross-border economy, reviewing the research and development tax system and implementing innovation, tax systems for crypto assets, promoting startup investment, and reviewing compensation accuracy.

The background to the publication of the proposal is that Japan has high tax rates on income for both individuals and corporations. The tax rate on personal income is very high in Japan at 55%, compared to 22% in Singapore, 37% in the United States, and 30% in India.

In terms of the trend in world GDP, the United States has grown more than fourfold in 33 years, while Japan has remained flat. In comparing tax revenues between the United States and Japan, the tax rate is lower in the United States, but tax revenues are overwhelmingly higher at $4.4 trillion compared to Japan's $512.8 billion.

In creating a tax system to strengthen the development and promotion of AI, the proposal recommended the application of preferential treatment systems for strengthening development. The report stated that a strategic field lab tax system should be established, and that in cases where AI-related research institutes are established with the aim of strengthening the foundation for creating scientific research data, the tax deduction rate for testing and research expenses should be increased, and that in cases where data holders and development companies collaborate for the purpose of data preparation and development in order to support the construction of high-quality large-scale Japanese language models, preferential treatment such as tax deductions for expenses should be considered when the government certifies the plan.

Regarding the cryptocurrency tax system, the report pointed out that while the Web 3.0 market is rapidly expanding around the world, the current regulations and tax system are a hindrance, and promising Web 3.0 companies are fleeing the country. If the exodus of Web 3.0 companies continues, Japan may be left behind in the Web 3.0 market. In addition, from the perspective of promoting Web 3.0 businesses, including supporting startups, it is urgent to take measures to promote the formation and development of a token economy market.

Crypto assets should be subject to separate taxation

Profits arising from cryptocurrency transactions should be subject to separate self-declaration taxation (flat rate of 20%), and losses should be carried forward and deducted from the amount of income related to crypto assets.

They also argued that separate taxation should be allowed for cryptocurrency derivative transactions.

Taxation of profits and losses from cryptocurrency transactions should be carried out in one lump sum when holdings of cryptocurrency are converted into legal tender in order to avoid the complication of tax calculations, and that the way inherited cryptocurrency is taxed should also be reviewed.

Other proposals include making it possible to handle cryptocurrency ETFs, and that the leverage ratio for cryptocurrency, which is currently set at 2x across the board, should be made more precise so that it can be set for each type of cryptocurrency, allowing for flexible response to risks.

The Japan Association of New Economy is an economic organization founded in 2012 by Rakuten CEO Hiroshi Mikitani. Its members include companies from a variety of industries, from startups to large corporations, and not just IT companies.

Reference: Announcement
Image: Shutterstock

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