To tax or not to tax? Japan debates how to handle bitcoin

TOKYO - Calls are mounting in Japan to exempt bitcoins from consumption tax. Critics argue that taxing bitcoins hurts Japan's competitiveness.

But financial regulators have gone only so far as to propose to give bitcoins pseudo-currency status, not tax-free status.

"Can't you consider not imposing consumption tax on bitcoins in line with the international trend?" Tsukasa Akimoto, a member of the ruling Liberal Democratic Party, asked Finance Minister Taro Aso at a lower house budget committee meeting on Feb 5.

"Japan is not alone" in taxing bitcoins, Aso responded, citing Australia and other countries that tax virtual currencies.

Although Aso defended bitcoin taxation, Japan is clearly bucking the trend.

Last year, the European Court of Justice ruled that bitcoins should be exempt from value added tax, treating the virtual currency as a means of payment similar to other forms of legal tender such as bank notes and coins.

Among the Group of Seven major industrialized countries, only Japan taxes bitcoins.

"Japan is going against the world," said Yuzo Kano, head of the Japan Authority of Digital Assets, an industry group for virtual currencies.

"The taxation is bad for Japan in terms of its competitiveness," he said, calling for an end to bitcoin taxation.

The bitcoin taxation is affecting both consumers and dealers.

When individuals living in Japan buy bitcoins with yen through a domestic exchange, their purchase is subject to the 8 per cent consumption tax rate, just as when they buy physical goods.

The tax saps people's willingness to use the virtual currency.

Dealers worry that discouraged consumers may turn to outside exchanges to escape the consumption tax.

Under Japanese law, imported goods are subject to consumption tax and the tax is collected at customs.

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