Japan Developing System to Detect Crypto Tax Evasion

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Japan Developing System to Detect Crypto Tax Evasion

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Japanese newspaper Mainichi Shimbun ran a report on 4 December that says Japan’s National Tax Agency (NTA) is seeking new ways to prevent cryptocurrency tax evasion. The tax authority is now in the process of developing a dedicated tax auditing system that will allow it to seek data from intermediaries like cryptocurrency exchanges and other financial institutions involved in cryptocurrencies. The system will eventually be authorized by a relevant bill from the government. 

There is no law currently that covers data submission to the NTA. Crypto exchanges can give required data on their own free will and even reject requests under privacy laws. The new legislation will still protect privacy laws, with requests aimed only at traders who would earn more than JPY 10 million through crypto trades. Exchanges will still have the right to appeal to requests, should they believe privacy is being violated.

The taxation system of Japan is complex, with a lot of confusion on how to report gains from crypto trading. A policy committee debated in October on how to simplify it, thereby allowing crypto traders to declare their earnings. Mainichi Shimbun, in its report, also cited a survey done by NTA that showed over 300 individuals had declared their earnings to be in excess of JPY 10 million in 2017.

In recent times, Japan has been introducing new regulations aimed towards bringing cryptocurrencies under a clearer set of rules. It has even started classifying crypto tokens according to their nature, such as declaring stable coins are not cryptocurrencies.

Financial Services Agency, the Japanese financial regulator, is also implementing heavier ICO regulations to protect crypto inventors from fraudulent schemes. Under this scheme, any entity planning to do an ICO must get an approval from FSA beforehand.


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