Japan Debates Bitcoin Sales Tax, Stricter Rules for Exchanges …

The Japanese financial newspaper
Nikkei

reported in early March that the country’s parliament, the Diet,
will soon vote on a set of Bitcoin regulations to be put forward by
the ruling cabinet.

The regulations proposed by Finance Minister Taro Aso of the
ruling Liberal Democratic cabinet would classify Bitcoin as a
currency, impose new requirements on Bitcoin exchanges and allow
banks and securities firms to invest and trade in the virtual
currency.

Following the collapse of Mt. Gox in early 2014, then the
largest Bitcoin exchange in the world, Japan built a firewall
separating Bitcoin from the financial sector. Banks were barred
from buying and selling bitcoins, and securities firms were
prevented from trading the virtual currency.

The proposed regulations would
remove the firewall

between Bitcoin and the financial sector, according to the
Nikkei

. Commercial banks would be allowed to provide Bitcoin to
customers, and securities firms would be allowed to trade the
virtual currency. The government hopes that removing the firewall
will encourage the development of Japan’s emerging fintech
industry.

The regulations, if passed by the Diet, would mark the first
concrete step in a years-long debate about how to deal with
Bitcoin. But not all Diet members are pleased with the
proposal.

Tsukasa Akimoto, a member of the ruling Liberal Democratic
party, asked Finance Minister Aso in a budget meeting in early
February if maintaining the consumption tax on Bitcoin transactions
would
set Japan against the global trend

. In response, Aso cited other countries such as Australia that
also tax transactions using the virtual currency. As the proposal
stands, Japan would continue to levy an 8 percent consumption tax
on all purchases made with Bitcoin.

Continuing to tax Bitcoin will put Japan at a disadvantage and
discourage its use by consumers, says Yuzo Kano, leader of the
Japan Authority of Digital Assets, an industry group that advocates
for virtual currencies. Kano says that Japan is “going against the
world,” and that continuing the consumption tax will hurt Japan’s
competitiveness in the emerging fintech ecosystem.

According to Kano, international Bitcoin traders make a business
of “importing” bitcoins into Japan from untaxed exchanges overseas.
Kano is calling for a “level playing field” to stop the importation
of Bitcoin from other countries.

The U.S. Commodity Futures Trading Commission ruled in September
that Bitcoin is a commodity, empowering the agency to monitor
businesses that trade the virtual currency. Because Bitcoin is
classified as property in the United States, states and cities can
levy sales taxes on Bitcoin transactions, although none have done
so. On the other side of the Atlantic, the European Union Court
ruled in October that
Bitcoin is a currency

, not a commodity, and therefore cannot be taxed.

Of the Group of 7 countries, only Japan taxes purchases made
with Bitcoin. The upcoming G7 meeting in May will be held in Japan,
and how to regulate virtual currencies is set to be a major topic
of discussion.

Whether or not Japan continues to tax Bitcoin transactions,
Bitcoin exchanges would face increased scrutiny under the proposed
regulations. Exchanges would have to meet a mandatory minimum
capital requirement of 10 million yen, keep company and customer
assets separate and submit to auditing by certified public
accountants.

Exchanges would also be required to follow the same
know-your-customer (KYC) and anti-money laundering (AML) rules as
banks and other financial service providers, confirming the
identities of clients and reporting suspicious trading to financial
authorities.

According to Motokazu Endo, an attorney specializing in
financial legislation, many of Japan’s Bitcoin exchanges have
weak financial bases

, which the proposed regulations could expose.

This is a guest post by Scott Dylan, and the views are those
of the author.

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