The Japanese government officially cancels the Bitcoin consumption tax, and Bitcoin may soar

March was a busy month for the Bitcoin industry in Japan. The country officially recognized Bitcoin as a legal means of payment. In addition, Japan is also planning to further recognize the digital currency - the long-awaited tax reform bill was officially passed this week. Part of the bill includes the elimination of consumption tax on digital currencies such as Bitcoin.

Consumption Tax in Japan

According to Japanese domestic law, consumption tax is the process of levying taxes on goods and services under the Consumption Tax Collection Law. The Kyoto official tourism guide website states:

This system is similar to value added tax (VAT), goods and services tax (GST) and sales tax.

Deloitte’s Japan office explained that before the latest tax bill was passed, digital currencies such as Bitcoin “were not exempt from taxation, and therefore, the sale of virtual currencies in Japan was subject to taxation under the Japanese Consumption Tax Law.”

Currently, Japan's consumption tax on all goods is 8%, but this figure is expected to increase to 10% by October 2019.

Bitcoin sales tax no longer exists

On March 27, the Japanese parliament passed the 2017 Tax Reform Bill, which included amendments to the Fund Settlement Law promulgated in May last year. The Japanese coalition ruling party passed the amendment as early as December last year. Deloitte Japan said that the Fund Settlement Law gave virtual currency a "new definition" as a "settlement method."

Under the new settlement law, sales of virtual currencies are no longer subject to consumption tax. This change applies to all virtual currency sales transactions in Japan after July 1, 2017.

There are still other tax items

According to the Japan Times, the new bill defines digital currencies as "asset equivalents" that "can be used for digital payments and transfers." Therefore, the purchase and sale of Bitcoin and other digital currencies will no longer be subject to an 8% consumption tax. However, as an asset equivalent, digital currency transactions still involve capital gains tax.

Bitflyer, a major Japanese Bitcoin exchange, explained:

The income from bitcoin transactions, especially continuous transactions for the purpose of obtaining income, will be regarded as income from business activities or miscellaneous income. However, the purchase and sale of bitcoins involves investment purposes, so this process may be regarded as capital gains.