Last month, on February 26th, Cointelegraph wrote an article about the legislative revisions that were to be presented by the Financial Services Agency of Japan, which sought to see Bitcoin and other virtual currencies recognised as a legitimate currencies. It was deemed that Bitcoin and other virtual currencies did indeed fulfil the nation’s definition of the functions of a currency, and therefore, should be recognised as such.
Increased regulation in Japan
As was discussed in Cointelegraph’s previous article, the main reason for this move to legitimization is to “ensure tighter oversight from the [Financial Services Agency of Japan] over the virtual economy.” The agency’s revisions proposed that “all institutions that deal in the business of virtual currencies, i.e. all exchanges and bitcoin businesses, would need to register with the Financial Services Agency.”
Heavy regulation has evidently been greatly pushed for in the Japanese cabinet, as it has arisen that cryptocurrency exchanges will be placed under the supervision of the agency, and as part of this supervision, they would be required to be audited by certified public accountants, and would need to have a minimum capital of 10 million yen, or 88,066.60 USD, a substantial sum. Annual financial reports will be made mandatory, along with segregation of company and customer assets, with the aim of forcing exchanges with poor finances to be exposed. Lastly, with the goal of protecting customers, full disclosure of fees and contracts with users will be mandatory.
Previous to these revisions, exchanges were not required to have dedicated permissible investment reserves for use in case of bankruptcy, and external audits and the segregation of exchange asses and customers assets was not commonplace.
The hope is that these measures will help to prevent money laundering, while still ensuring the protection of the interests and security of Japan’s cryptocurrency users.
Many have asked the question of whether this new legislation will allow Japanese citizens to pay their taxes in Bitcoin, but regrettably, this will not be the case. As Reddit user, /u/ismith23 put it:
“The change is not a particular recognition of Bitcoin as a currency. The new definition would consider anything that can be exchanged for goods and services or legal tender as a currency. The changes mean bitcoin, and other cryptocurrencies, can be more tightly regulated and taxed. Taxes are assessed in Yen so they are paid in Yen. No change there.”
Whether consumption tax should be imposed on Bitcoin transactions has also been debated in the Japanese cabinet. At a lower house budget committee meeting in February, a member of the ruling Liberal Democratic Party, Tsukasa Akimoto, asked Finance Minister, Taro AsoAso, “Can’t you consider not imposing consumption tax on bitcoins in line with the international trend?”, to which AsoAso responded by pointing out that Japan is not the only country intending to tax Bitcoin, with other countries, like Australia, also taxing virtual currencies.
Lastly, the issue of the high amount of capital required to operate as a cryptocurrency exchange have troubled some of those interested in cryptocurrency innovation in Japan. Reddit user, /u/markcoll, said of the high capital requirement:
“10 million yen to start up? Goodbye innovation..”