The Japanese tax authority has expressed its determination to tax the sales of non-fungible tokens (NFTs) and the income made by crypto and blockchain games.
In a frequently asked questions-style paper, the National Tax Agency (NTA) outlined rule for tax officers dealing with NFT-related cases where levies such as consumption tax (Japan’s version of VAT) should be levied.
The rules are not yet established in the Japanese tax code or other laws, but local or central tax agencies and NTA officials will likely utilize them until parliament updates the applicable legislation. When filing annual tax returns, the agency recommended officers and those desiring to disclose their transactions to check details of calculating methodologies with experts and officers specializing in the topic.
In the majority of secondary market transactions, however, NFT traders have been urged to file tax returns and pay capital gains tax on their profits.
However, NFT developers and traders would be able to deduct expenses from their tax returns. However, receivers of NFT giveaways may be required to pay tax on any tokens they receive for free. The clarification in the FAQs that NFTs constitute as a type of intangible property under national law is likely to encourage proponents of non-fungible tokens. The NTA emphasized that tokens stolen or lost owing to unlawful [wallet] access may not be taxable.
There were, however, conflicting reports for crypto and blockchain enthusiasts. The NTA acknowledged that it is difficult to evaluate each individual transaction in the case of play-to-earn (P2E) games but recommended that crypto profits from games be reported as “miscellaneous income” on annual income tax filings.
However, this is only necessary for games that utilize tokens that can be traded on crypto trading platforms or converted to fiat currency. The NTA explained that “in-game” currencies that cannot be used outside of a particular game’s ecosystem are not considered taxable.
