Japanese Government to Simplify Cryptocurrency Taxation Process

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A committee of tax experts in Japan that is responsible for advising the government on taxation matters has called for the simplification of the country’s cryptocurrency tax filing process.

According to officials of the tax panel, the process is currently complicated and a change is required in order to enhance accuracy and compliance. Per a Japanese news publication, Sankei, the committee held a meeting earlier in the week where the proposal to change the current cryptocurrency tax filing system was discussed.

Part of the problem according to the committee lies in the fact that calculating cryptocurrency gains for taxation purposes is a complex affair and this discourages some owners of digital assets from declaring their crypto holdings when filing tax returns.

Taxing Gains and Conversion Premium

According to the tax panel, cryptocurrencies in the Asian country are taxed not only on the gains made but also on the gains accruing when one digital asset is converted into another. Other complications stem from the fact that a unified source of historical data on prices is lacking. Towards finding a solution the panel has indicated that it will hold meetings where it will seek views and opinions from various stakeholders.

As previously reported by CCN cryptocurrency investors in Japan face crypto tax rates ranging between 15% and 55% and this is classified under miscellaneous income. The amount paid as tax depends on earnings with the higher rate imposed on the high-earners. For instance, investors who generate yearly earnings of more than 40 million yen (approximately US$365,000) pay a 55% rate on their cryptocurrency income.

The view by the tax panel that simplifying the cryptocurrency tax filing process will enhance compliance is correct as it has been previously noted that a significant number of crypto investors in Japan could be evading taxes. A report released earlier this year, for instance, indicated that out of the 549 individuals who recorded a non-working or non-operational profit (income generated from investments) of US$1 million in 2017, about 331 were investors in the crypto space.

https://twitter.com/GigaBitcoin/status/1001322461437177861

Tax Avoidance

This was however met with incredulity with some observers saying that many more evaded paying taxes on their crypto investments especially given the fact that Japan is not only the world’s third-largest economy but the level of cryptocurrency use, awareness and adoption is among the highest in the globe.

“If the rapid growth of the cryptocurrency sector in late 2017 is considered, 331 is a number that is simply too low to be true. A large portion of cryptocurrency investors probably did not declare their earnings to the government,” one analyst observed as CCN reported at the time.

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Japanese Government Mulls over Ways to Simplify Filing Taxes on Cryptocurrencies

Although most countries are playing safe when it comes to cryptocurrency regulations, it is heartening to see some countries proactively helping its citizens while filing taxes.

The Government Taxation Investigation Committee which is an advisory body of the Prime Minister has reportedly started a conversation on improving the system so that it can be easier to file taxes on cryptocurrencies. This discussion took place on Wednesday at the general meeting.

According to a report published in the local daily, Sankei, the profit obtained by selling virtual currency will correspond with the annual income of the investor. If the investor earns over 200,000 yen, then they must file a final return and pay income tax.

However, the virtual currency is taxed not only on the gain gained from the difference between the acquisition price and the selling price but also on the profit obtained by exchanging with another cryptocurrency. Even if the investor buys a product in cryptocurrency and gets profit, that will be taxable.

This discussion took off when it emerged that tax payers are finding it hard to grasp at all the profits from unexpected quarters. This method, essentially, will streamline all the extra bonuses that investors receive and how much tax they should be paying for the same.

At the general meeting, the committee members said, “The environment should be adjusted so that tax returns can be simplified.”

The committee also pointed out that in a “sharing economy (shared economy)” which shares goods and services among individuals via the Internet, should also take cryptocurrencies into consideration as it is a new form of economy and taxes should be imposed.

In the press conference, that followed the meeting, Nakazato Nakazato, who is the president of the taxation, said, “Since it is necessary to take into consideration the framework other than the taxation system and business practices as well, we will hold a small expert meeting and outside opinions I will deepen the discussion while listening.”

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