Tax proposals favoring crypto are good news

15 December, 2018

It would seem as though the world is on course to adopt cryptocurrencies as legal tender, thereby opening the door to eventually replacing fiat currencies. World governments know that, which is why we are starting to see leaders in a number of different places seriously consider how Bitcoin, Litecoin, etc. should be regulated. Japan is a good case in point.

A Japanese lawmaker by the name of Takeshi Fujimaki just introduced four new tax proposals aimed at encouraging crypto investments and the development of blockchain. The proposals would bring taxes on cryptocurrency profits more in line with stocks and bonds.

Though the proposals themselves are not guaranteed to ever become law, the mere fact that a prominent lawmaker is pushing for them says something. Indeed, whenever tax proposals favor crypto, they are considered good news. Such proposals are an indication that leaders are beginning to recognize the value of cryptocurrency transactions as a way of maintaining some semblance of economic balance.

In a practical sense, everything from online gambling to purchasing retail goods would benefit from the proposals becoming law. It is simple economics. Allow crypto investors to keep more of their money rather than giving it to the government and they will have more money to spend in the general economy.

Japan's current crypto taxes

The current tax system in Japan is viewed as punitive toward those who invest in cryptocurrencies. Right off the top, crypto profits are taxed as miscellaneous income. That makes them subject to rates that could be as high as 55% under the right conditions. It makes sense that investors would steer clear of making cryptocurrency profits in Japan out of fear of losing more than half of what they make.

By contrast, profits from stocks, mutual funds, and bonds are considered capital gains. They are taxed at a flat rate in the neighborhood of 20%. Fujimaki sees the disparity and wants to change it. He believes that lowering the tax rate on crypto - or merely changing the law so profits are considered capital gains instead of miscellaneous income - will encourage more widespread adoption of cryptocurrency in Japan.

Taxing every transaction

Another issue in Japan is that each cryptocurrency transaction is viewed separately for purposes of taxation. So let's say you buy and sell BTC two-dozen times within a given tax year. You don't add up your total profits for the year and then calculate your taxes. You pay taxes on each transaction that turned out profitable. That means you could end up paying tax even if your total profit/loss for the year ended up in the red.

This is something else Fujimaki wants to change. He insists that looking at each transaction separately for tax purposes is too complicated for taxpayers. It also creates an undue burden that applies only to certain kinds of transactions, making the system unequal.

Carrying losses forward

Finally, Fujimaki wants Japanese lawmakers to allow crypto investors to carry losses forward into the next year - the same way stock investors already can. The law does not currently allow them to do that.

Let's say a stock trader suffered the loss of about ¥510,000 (roughly USD $4,500) in 2018. He could carry those losses into 2019 rather than account for them on this year's tax return. Should he make a profit next year, he could offset that profit with his 2018 losses. This reduces his overall tax bill.

A cryptocurrency investor losing the same amount in 2018 is stuck with it. It cannot be carried into 2019 to offset future gains. While dealing with the loss this year doesn't change his tax position for 2018, it will certainly have an effect on 2019 if he ends up making a profit.

Bringing cryptocurrency trades in line with stocks for the purposes of carrying losses forward would make the playing field more even. Fujimaki believes it would encourage more investment in cryptocurrency.

What it all means

By now you might be asking what all this means and why it matters to online gambling. Fair enough. for example is, first and foremost, a site dedicated to the Mega Moolah jackpot slot and online gambling in general. Trust us when we say all of this does matter to online gamblers. Allow us to explain.

As an online gambler, we trust you are only gambling with disposable income. If you are gambling with money you need to put food on the table or pay your monthly expenses, please stop. Do not jeopardize your own financial health and that of your family by gambling money set aside for normal living expenses. Gambling should be a recreational activity only.

Having said that, don't you wish you had more disposable income to do with as you please? Sure you do. We all do. But the fact of the matter is that we are all subject to taxation. All of us sacrifice some of our disposable income to government. It is a necessity of life.

What must be understood is that economic activity and taxation are intrinsically linked. They are also inversely proportional. As one increases, the other declines. Understanding this inverse relationship is at the core of Takeshi Fujimaki's proposals in Japan.

Less taxation means more investment

You are happy to use some of your disposable income to play Mega Moolah and other casino games. That's awesome. Someone else might choose to invest disposable income in Ethereum or Bitcoin. That's great too. But what if both of you face 55% taxation on your profits. Will you continue to do the same things with your disposable income?

You might continue to gamble simply because you enjoy doing so. You are not planning to become a millionaire anyway, so a 55% tax rate is not bothersome enough to get you to stop gambling. The same is probably not true for the crypto investor.

Investors do not have to put money into cryptocurrency. Facing a 55% tax bill is motivation to any investor to put his/her money elsewhere. So ultimately, taxing crypto profits as miscellaneous income is preventing investors from investing as much as they otherwise would in Bitcoin and other platforms.

Reduce the taxes on crypto profits and more investors are likely to put money into their favorite platforms. It is human nature. Lowering taxes makes investors more willing to invest. More investors in crypto means higher coin values which, in turn, makes your crypto worth more. This is motivation for you to continue transacting business with cryptocurrency. Everyone wins.

Increasing the legitimacy of crypto

Takeshi Fujimaki's proposals would have the added benefit of increasing the legitimacy of cryptocurrency should they ever become law. Remember, cryptocurrencies are not considered legal tender in most countries - if any at all. Rather, they are considered investments along the same lines as stocks and bonds.

The mere fact that Fujimaki recognizes the need to encourage cryptocurrency investing and blockchain development reveals he has a deeper understanding of crypto than other lawmakers. He understands that Bitcoin, Bitcoin Cash, and all the rest are more than just digital currencies. They are vehicles for stimulating national economies by giving equal access to those economies across all classes.

Here's hoping that Fujimaki's proposals become law. If they do, they will increase the legitimacy of cryptocurrency as a platform for doing day-to-day business. They will encourage more people to invest in crypto. They will make Bitcoin gambling online more attractive to more gamblers as well. Only good things can come from the proposals.

The future of cryptocurrency

All this talk of taxation and Bitcoin gambling leads to speculation over the future of cryptocurrency. The question of where platforms like Bitcoin and Litecoin will be 10 years from now is wide open. No one really knows for sure.

On the one hand, cryptocurrencies offer the promise of a more stable and balanced world economy free from manipulation by governments and central banks. Indeed, that was the original promise of the whole cryptocurrency philosophy. On the other hand, it is really difficult to imagine world governments allowing cryptocurrency platforms to continue to have free reign forever.

It is not possible for a national government to take over something like Bitcoin without causing a huge collapse that would make BTC worthless. But governments can issue their own cryptocurrencies. Venezuela has already done so, though there is speculation as to whether their coin is legitimate or not. But even the U.S., Canada, and the UK have already developed test coins.

Then there is the issue of Stablecoins. A stablecoin is a cryptocurrency that is backed by some other assets of real value. Stablecoins can be backed by fiat currency, a tangible asset like gold or crude oil, or even another cryptocurrency. Regardless of the backing, a stablecoin is less subject to volatility because its value is supported by the backing asset.

All of this is to say that world governments are looking to get involved in the cryptocurrency space one way or another. It is only a matter of time before they eventually succeed. That's why favorable tax laws are such welcome news. Cryptocurrency platforms obviously want favorable treatment from government. The more favorable treatment they get, the better it is for both platforms and users alike.