Japan’s tax reform bill which officially eliminated consumption tax on the sale of Bitcoin came into effect on July 1. Bitcoin trading activities are expected to rise in Japan following the activation of the bill.

In a report entitled “Japan: Inbound Tax Alert, 2017 Tax Reform Proposals,” Deloitte previously revealed that virtual currencies including Bitcoin were set to be exempt from the eight percent consumption tax in Japan.

Deloitte’s report read:

“The supply of virtual currency will be exempt from Japanese Consumption Tax (“JCT”). Currently, virtual currencies such as Bitcoin do not fall under the category of exempt sales, and as a result, the sale of virtual currencies in Japan have been treated as taxable for JCT purposes. Following the enactment of the amended Fund Settlement Law in May 2016, which newly defined “virtual currency” as a means of settlement, the sale of virtual currency as defined under the new Fund Settlement Law will be exempt from JCT. This change will apply to sales/purchase transactions performed in Japan on or after 1 July 2017.”

Japanese Bitcoin market

On March 27, the Japanese National Diet officially approved the 2017 tax reform proposals shared by Deloitte, passing the Bitcoin consumption tax bill along with other bills listed on the proposed reforms. The bill, which came into effect on July 1, is expected to drastically increase Bitcoin and cryptocurrency trading activities within the Japanese cryptocurrency exchange market.

On April 1, the Japanese government officially recognized Bitcoin as a legal payment method and currency. Since then, the Japanese government has been focusing on creating and establishing a more efficient ecosystem for Bitcoin traders, businesses and users. A major part of the initiative was to render Bitcoin and cryptocurrency trading frictionless, allowing traders to easily access cryptocurrencies without having to deal with external factors such as taxes.

The Japanese Bitcoin exchange market is already well regulated and well-equipped with appropriate Know Your Customer (KYC) and Anti-Money Laundering (AML) systems. AML policies are especially strict in Japan and South Korea, it is difficult for traders to take advantage of potential arbitrage opportunities and utilize Bitcoin to move large sums of money outside of Japan without triggering the AML systems adopted by local trading platforms.

Bitcoin price increases - a coincidence?

Although it could be completely coincidental- since the activation of the Japanese Bitcoin tax elimination bill on July 1, Bitcoin price increased from around $2,450 to $2,570. It is not a fair assessment to wholly attribute Bitcoin’s upward momentum to the Japanese market as it only accounts for 16.2 percent of the global Bitcoin exchange market.

However, positive signs for Bitcoin trading in Japan could have established a positive precedent across Asia, which controls more than 65 percent of the global Bitcoin exchange market share and affected bitcoin price.

Bitcoin’s tax elimination bill is also important for the ecosystem of Japanese Bitcoin merchants. Recently, some of Japan’s most influential companies including its largest electronics retailer Bic Camera started to accept Bitcoin as a digital currency and a payment method.

Soon, hundreds of thousands of restaurants, cafes and stores could begin accepting Bitcoin as AirRegi, Japan’s largest point of sale machine operator, is looking to integrate Bitcoin by the fall of 2017.