Japan’s government and ruling coalition have signaled support for a sweeping reform of the nation’s crypto tax system, backing plans to cut the maximum tax rate on digital-asset profits to a flat 20%. The changes, originally proposed by Japan’s Financial Services Agency in November, now have political momentum heading into 2026. Under the plan, the FSA intends to introduce a bill during the regular Diet session in early 2026. The shift would bring crypto taxation in line with equities and investment trusts, which already benefit from a uniform 20% rate. Current System Burdens Crypto Traders With High Rates Under existing rules, profits from crypto trading are categorized as “miscellaneous income,” meaning individuals and businesses face income-based taxation. The rate can range from as low as 5% to as high as 45%, depending on annual earnings. High-income earners may also be subject to an additional 10% inhabitant tax, pushing the total burden even higher. This system has long been criticized for discouraging both investment and innovation in Japan’s digital-asset sector. By contrast, gains from equities and investment funds are treated separately from income tax and taxed at a consistent 20%. Proposed Changes Aim to Boost Domestic Crypto Activity Nikkei Asia reported that the proposed reduction is part of a broader plan to place crypto assets within a “solid investor-protection framework” while aligning them more closely with other financial products. The reforms are expected to increase domestic participation by removing one of the biggest deterrents facing retail and institutional investors. If passed, the new structure could make Japan one of the more competitive major markets for digital-asset investing. FSA Bill Targets Oversight, Transparency and Market Integrity Alongside the tax reduction, the FSA’s upcoming legislation will include new rules aimed at tightening market oversight. These measures will reportedly address the handling of non-public information, enhance disclosure requirements and introduce safeguards to reduce risks in crypto trading. The goal is to strengthen regulatory protections while allowing the industry to grow under clearer, more favorable conditions. Lobbying Efforts Show Signs of Paying Off For nearly three years, the Japan Blockchain Association has pushed for a flat-rate tax structure for crypto assets. In 2023, the group published a formal letter urging the government to adopt a 20% rate similar to those used for other investments. “This letter requests a review of tax on crypto assets, which is the biggest hurdle for companies operating Web3 businesses in Japan and a disincentive for the public to actively own and use crypto assets,” the letter reads. While the FSA has not confirmed whether the association’s lobbying directly influenced its decision, the agency began publicly considering reforms in late 2024. Industry Prepares for a New Phase of Growth If the legislation passes in 2026, Japan’s crypto market may experience a substantial increase in trading activity. Lower taxes, combined with stronger investor protections, could attract both domestic users and international companies seeking regulatory stability. The reform would represent one of Japan’s most significant steps toward modernizing its financial landscape and reaffirming its position as a major hub for blockchain innovation.
