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Japan’s ruling Liberal Democratic Party (LDP) has introduced a proposal aimed at significantly lowering the tax rate on crypto gains from the current maximum of 55% to 20%.

This proposal seeks to classify cryptocurrencies as a new asset class under the Financial Instruments and Exchange Act, thereby aligning the tax treatment of crypto with that of traditional securities.

Currently, Japan categorizes crypto gains as miscellaneous income, subjecting investors to a steep tax burden. The proposed regulatory reform would transition the classification from the Payment Services Act to the Financial Instruments and Exchange Act, designating cryptocurrencies as “financial products.”

This change could pave the way for a potential spot crypto exchange-traded fund (ETF) in Japan, which has been a topic of interest among industry stakeholders.

Akihisa Shiozaki, a member of Japan's House of Representatives and leader of the LDP’s Web3 working group, noted that the initiative aims to foster market development and enhance investor protection. The LDP is inviting public feedback on the proposal until March 31, after which it will be submitted to the Financial Services Agency (FSA).

In December, the Japanese government approved a revision to its tax regime, allowing corporations to avoid taxation on unrealized crypto gains if they hold the assets for the long term. The FSA is also expected to outline further directions for crypto regulation by June.

Industry leaders have expressed optimism regarding the proposal, viewing it as a positive step towards creating a more favorable environment for crypto investments.