Japan to regulate Bitcoin trades, impose taxes
TOKYO -- The Japanese government will set rules for trading bitcoins, defining the virtual tender not as a currency but as a commodity akin to gold.
Gains from trading bitcoins on online exchanges, and purchases made with them will be subject to Japanese tax. Banks will be prohibited from handling them, and securities firms will be barred from brokering Bitcoin trades.
Since its origin in 2009, Bitcoin has occupied a legal gray zone. But the cryptocurrency has arguably become too big for regulators to ignore. The value of bitcoins in circulation worldwide at one point reached 1 trillion yen ($9.75 billion).
Japan will become the first major economy to attempt to regulate the virtual currency and may prompt others to move in the same direction. Last week, Mt. Gox, a Tokyo-based Bitcoin exchange, filed for bankruptcy, drawing attention to the issue of protecting users.
An opposition lawmaker has asked the government's position on Bitcoin's legal status. In the days ahead, the cabinet will issue a response that will become the basis for guidelines that would also apply to any similar virtual currencies that may come later.
Significantly, the guidelines will call for taxing Bitcoin transactions. Purchases made in bitcoins will be subject to Japan's consumption tax, which is set to rise to 8% on April 1. Trading gains will be taxed, and companies will need to pay tax on revenue earned from Bitcoin transactions. But enforcement could prove difficult, as tax authorities will have to track down users.
Given Bitcoin's potential use in money laundering and other crimes, regulating it poses an international challenge. Thus far, major economies' approach has been inconsistent. China has banned financial institutions from processing Bitcoin payments. Russia says using bitcoins as a currency is illegal. Meanwhile, a federal court in the U.S. state of Texas has ruled that Bitcoin is a currency. Any attempt to introduce common rules would likely take time, experts say.