Japan set to drop sales tax on buying virtual currency
TOKYO -- Japan looks to end sales-tax collection on purchases of virtual currencies in the spring, a move likely to propel the growth of bitcoin and others as alternatives to traditional money.
The change would reduce costs for buyers and relieve operators of virtual-currency exchanges of the administrative burden related to the tax. Discussions between the Finance Ministry and Financial Services Agency are expected to lead to a formal decision after talks by a ruling-coalition tax panel at the end of the year.
Virtual currencies do not exist beyond the online world. The most widely used virtual currency is bitcoin, and buyers pay an 8% consumption tax in Japan to obtain bitcoins at dedicated exchanges, along with other fees.
"Administrative work will be reduced substantially," an official of a major bitcoin exchange operator said.
Japan is the only country among the Group of Seven leading industrial economies that taxes bitcoin purchases. The FSA had sought clarification in the summer on the nature of virtual currencies to decide whether their purchases should be taxed.
The revamped fund settlement law that took effect earlier this year defines virtual currencies as means of payment -- just like prepaid cards. The Finance Ministry is expected to use this definition as grounds to eliminate the consumption tax on virtual-currency purchases.
As of September, about 2,500 stores across Japan accepted bitcoin as a means of payment for shopping and dining, said ResuPress, a Tokyo-based bitcoin exchange operator. The tally quadrupled on the year. ResuPress plans to let users pay electricity bills with bitcoin starting as early as this year.
Users can send virtual currencies to others for extremely low fees, and such money can be used internationally without the need to convert to local currencies. But their value fluctuates widely, like stocks. One bitcoin has risen to around 64,000 yen ($619) from about 54,000 yen in early August. For this reason, many people see them as investment vehicles. Capital gains on virtual-currency trading will continue to be levied as income taxes.