Nikkei reports (without sources) about plans of the Japanese government on the Bitcoin network.
Part of those plans is only common sense. For example, if someone bought bitcoins at low prices in the past and sells them now, the capital gains will be taxed under normal rules. That part is also something that does not need any new regulation at all. Existing Japanese tax law says that capital gains are taxed already.
But there are two ideas which are dangerous to Japan’s future.
One is about consumption tax. The article says:
Purchases made in bitcoins will be subject to Japan’s consumption tax.
If all that says is that you need to pay consumption tax for a camera you bought with bitcoins the same way as if you bought it with Japanese yen, again, that’s only common sense.
But if it says that you need to pay consumption tax also if you buy 100,000 yen worth of bitcoins, that would be an insanely high Tobin Tax of eight percent on any such transaction, which in turn would make it completely impossible to have any bitcoin exchange in Japan. No customer would be as stupid to buy bitcoins in a country that tries to do this.
The United Kingdom tax authority just two days ago declared exactly the opposite:
- 3. When Bitcoin is exchanged for Sterling or for foreign currencies, such as Euros or Dollars, no VAT will be due on the value of the Bitcoins themselves.
The other very problematic idea (again, from the Nikkei article):
Banks will be prohibited from handling them, and securities firms will be barred from brokering Bitcoin trades.
Such a policy would be most unfortunate, both for consumer protection as for the future of Japan’s financial industry.
If banks and securities firms can’t handle bitcoins, Japanese consumers will be stuck with illegal shadow banks like MtGox, and their risk will be much higher as a result.
As I discussed in a paper published yesterday, MtGox needed a bank license, since they were in the business of taking deposits from their customers. Under this new proposed policy, they would be barred from applying for one in the first place, as would anyone else be.
This is the equivalent of a ban in 1994 for banks to set up an Internet homepage. If such a policy is enacted, it will be a great symbol for Japan missing the greatest innovation since the Internet.
The Japanese cabinet decided last summer to make Japan the “World’s Most Innovative IT State”. To achieve that, the government calls for “revolutionary new industries and services”, which it says should be “promoted”.
You don’t promote revolutionary new services by shutting down the market completely before even the first bank or securities firm starts the first experiments. That’s backward thinking.
And you certainly don’t get to be “the World’s Most Innovative IT State” with a policy hostile to the Bitcoin network. You’d be stuck with an Internet still unable of handling peer-to-peer payments, while everyone else gets the new upgraded version of the Internet.
Tokyo has won the 2020 Olympics. But with this kind of policy, Tokyo’s financial industry will certainly not win in the global competition between financial centers.
Good news for New York and London, I guess.