Japan’s National Tax Agency last week published a set of guidelines for taxing “profits arising from selling or using virtual currency, including bitcoin”. The agency’s classification of profits as “miscellaneous income” has raised fears they will be taxed at the highest rate, even above 50 percent.
Those profits include any gains arising from sale, trading, purchasing items with digital currencies, as well as mining and chain-splits (forks).
Users Face Bookkeeping Headaches, High Tax Bills
For everyday users, recording the details of every transaction will likely be a headache — and further discourage use of digital currencies for anything other than investment.
Japanese news site SankeiBiz warned in a late November article “Half of profits are taxes – Beware of bitcoin’s treatment as ‘miscellaneous income’ which is disadvantageous at present”.
The latest information (PDF link) was released by the National Tax Agency (Kokuzeichou) individual taxation section on December 1st, 2017. It appears to be a more detailed version of an earlier statement which also suggested bitcoin profits were “miscellaneous”.
The document also stated there is no need to declare digital currency use on a tax return “for those who have salary income adjusted at year-end, and who have income of ¥200,000 ($1,765 USD) or less by selling or using the virtual currency, if there is no other income.” (machine translation)
The laws will also apply to digital currency miners, and those trading between digital assets. Anyone who acquires chain-split tokens (e.g. the hard forks that created Bitcoin Cash, Bitcoin Gold, and Ethereum Classic) will be taxed on any profit above ¥0.
Can We Please Have the Old Days Back?
Bitcoin users in Japan may find themselves longing for the freer days of the past few years, when exchanges operated openly within existing rules, and no-one paid tax on profits. Indeed, before late 2016 there weren’t many profits anyway.
All that changed in 2017 though. Bitcoiners got their profits, and Japan got official digital currency regulation. Companies and industry lobby groups welcomed the legitimacy and legal guidelines it brought despite the extra work — but end-users and traders now also face burdonesome effort to comply.
There was good news in July 2017 when Japan lifted its 8 percent national consumption tax on bitcoin sales. But now all users will need to adopt the kind of meticulous record-keeping and price-tracking measures as their cousins in the United States and Australia.
Even Consumer Purchase and Chain-Split Gains to Be Taxed
Bitcoin miners, traders and ordinary users will now need to record the exact amount of BTC (or any other digital asset) they acquired and its exact price at the time, including any exchange or payment fees. Profit (or loss) is calculated at the time of conversion into local currency (JPY) or purchase of goods in JPY.
If the currency units are acquired and sold in different amounts (which is generally what would happen if they’re actually used as money) users will have to calculate the percentage profit/loss on each transaction.
Mining profits will be treated either as business or miscellaneous income. Miners will be able to subtract mining overheads like facilities, power consumption etc. from the final profit.
Tax Rules Will Limit Actual Use of Digital Currencies
Bitsonline has reached out to representatives from the Japan Blockchain Association (JBA) for comment. Last month, the industry representative body also published a warning to those wishing to conduct an ICO in Japan. Non-compliance risked sanctions including prison time, under Japan’s existing financial and consumer laws.
There’s lots of money in bitcoin and digital assets these days — and governments around the world have decided they want their share. Unfortunately, like Bitcoin’s transaction limitations, it comes at the expense of regular, everyday use as money.
Do you think tax rulings like this are fair? Let us know in the comments.
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