JCBA and JVCEA request a 20% separate taxation declaration for cryptoassets and a 3-year loss carryover deduction.

The Japan Cryptoasset Business Association (JCBA) and the Japan Virtual Currency Exchange Association (JVCEA) submitted a request for tax reform for the fiscal year 2026 to the Financial Services Agency on July 30 and held a press conference on the same day.

The request document includes five proposed amendments, with the highest priority being the change of the tax rate for Cryptocurrency Trading from the current comprehensive taxation (with a maximum tax rate of approximately 55%) to a separate taxation rate of 20%.

In this request, it is specifically stated that the scope of the separate taxation will not be classified by "the types of cryptoassets and the types of wallets."

Request for Transition to 20% Separate Declaration Taxation

According to Takashi Saito, chairman of the JCBA Tax System Study Group (representative director of Pafin Inc.), this request seeks to establish a 20% separate declaration tax (15% income tax and 5% resident tax) including resident tax, as well as the introduction of a three-year loss carryforward deduction. Under the current system, profits from cryptocurrency trading are categorized as miscellaneous income and subject to comprehensive taxation, with tax rates set broadly between approximately 15% and 55% depending on income.

The cryptoasset market continues to grow steadily. "The number of cryptoasset accounts expanded to 12 million as of April this year. It has continued to grow since surpassing 10 million accounts at the end of last year, and it is increasingly recognized as an asset widely circulated among the public," Mr. Saito explained the current state of the market.

There are concerns that separate taxation may favor the wealthy, but the reality is different. According to an income survey conducted in June 2022 among cryptoasset investors (with 26,002 responses), those earning between 3 to 7 million yen accounted for 50.7%, making up the majority, and about 70% of the total were from the middle-income group. Mr. Saito pointed out that "for those in the 3 to 7 million yen range, when combining income tax and resident tax, it exceeds 20%. If separate taxation results in a uniform 20%, it would actually benefit the middle-income group."

All transactions are uniformly applicable

The notable point in this request is that it clearly states that the scope of separate taxation does not distinguish between "types of cryptoassets and types of wallets." This means that it includes not only transactions through exchanges but also transactions conducted through wallets managed by individuals.

Looking at the actual situation of member companies of JCBA, 30% are engaged in wallet-related businesses, and this reaches 40% when including those who are partially involved. "If we hypothetically limit the subject of separate taxation to transactions at exchanges, it could create disincentives for wallet-related businesses and startups that occupy a large share of the Web3.0 ecosystem, which may hinder the development of Japan's Web3.0 industry," emphasized Mr. Saito on the importance of consistency in policy.

International competitiveness and tax distortion

Japan's cryptoassets tax system is exceptionally high by international standards. "Compared to advanced countries, the absolute amount of Japan's tax rate is very large. The system is structured like capital gains taxation, applying a uniform tax system similar to Japan's separate taxation, which is the simplest and easiest to understand," said Mr. Saito, pointing out the divergence from international standards.

Furthermore, the more serious issue is the tax inconsistencies that could arise if a cryptocurrency ETF is introduced in the future. "If a Bitcoin ETF were to be created, I think there is a very high probability that it would be treated as a security and taxed at 20%. Even though we are dealing with essentially the same asset, it would be a significant difference whether the tax rate is 20% or up to 55% depending on the channel. This tax system lacks fairness and neutrality," Mr. Saito clarified the issues.

Outline of the request letter

The request submitted this time includes the following five items.

| Item | Request Details | | --- | --- | | ① Income Tax: Separate Declaration Taxation | – Request for 20% separate taxation on declared income and loss carryforward deduction (for 3 years)

• The scope of separate taxation shall not be classified by the type of cryptoassets and the type of wallets. – Targeting both cryptocurrency trading and derivative trading. | | ②Income Tax: Clarification and Rationalization of the Tax System Related to Donations |
• Stop uniformly applying Article 40 of the current Income Tax Act and Article 87 of the Enforcement Order of the same Act.
• To create a tax system that does not hinder donations made using cryptoassets, including the application of Article 59 of the Income Tax Act and Article 40 of the Special Tax Measures Act. | | ③Asset Tax: Improvement on Valuation and Acquisition Costs | – Special provisions for the acquisition cost addition regarding income from the transfer of inherited cryptoassets
• You can select the minimum amount of the average market value over the past three months for inheritance property evaluation. | | ④Review of Tax Timing for Exchanges between Cryptoassets |
• Tax will not be imposed at the time of exchanging cryptoassets with each other, but will be collectively taxed at the point when the held cryptoassets are exchanged for fiat currency. | | ⑤Income Tax: Review of Tax System Classification | – From the perspective of building a tax system that reflects the reality of cryptoassets, it is important to clarify that there may be income classifications other than miscellaneous income. |

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