March has been a busy month for Bitcoin in Japan. The country officially recognizes Bitcoin as a method of payment today. While Japan prepares to recognize the digital currency, its long-awaited tax reform bills have also been passed this week. One area the bills address is the consumption tax treatment of digital currencies including bitcoin.
Japan’s Consumption Tax
The consumption tax is the tax levied on spending on goods and services by the Consumption Tax Law, a municipal law in Japan. “This system can be considered 
as similar to the VAT (value-added tax), GST (goods and services tax) or sales tax”, describes Kyoto City Official Travel Guide website.
Deloitte Japan explains that, before the tax bills were passed, digital 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 [Japanese Consumption Tax] purposes”.
In Japan, the consumption tax is currently a flat 8 percent on all items, but it is scheduled to increase to 10% in October 2019.
No More Consumption Tax on Sale of Bitcoin
On March 27, the Japanese National Diet passed the 2017 tax reforms bills which include amendments to the Fund Settlement Law, enacted last May. The proposed amendments were agreed on by Japan’s ruling coalition last December. The Fund Settlement Law “newly defined “virtual currency” as a means of settlement”, according to Deloitte Japan, which explains:
The sale of virtual currency as defined under the new Fund Settlement Law be exempt from JCT. This change will apply to sales/purchase transactions performed in Japan on or after 1 July 2017.
But There are Still Other Taxes
The new rule defines digital currencies as “asset-like values” that “can be used in making payments and can be transferred digitally”, reports Japan Times. Therefore, bitcoin and other digital currencies are no longer liable for consumption tax of 8%. However, being asset-like, digital currency trading is still liable for capital gains tax.
“Profits from trading bitcoin, when coming from continuous trading for the purpose of 
generating profit, can be considered as income from business activities or miscellaneous income”, explains Japan’s largest exchange by volume, Bitflyer. “However, in the case of the sale of bitcoin held for investment purposes it can be considered a capital gain”.
