An example to illustrate the problem:
Let’s say you are a permanent employee in Japan earning an income of 15M JPY. In this case, the top portion of your income (9-15M JYP portion) is taxed at 33% (plus 10% inhabitant tax, so 43% total).
You own some bitcoin which you purchased a few years back and have made handsome profits. You now want to sell some of your bitcoin to lock in the gains. You decide to sell two bitcoins, which you purchased at 1M JPY and are now valued at 7M JPY. This means you have a taxable gain of 12M JPY.
Well, the first 3M JPY of gains will be taxed at 43%, and the second 3M JPY will be taxed at 50% (ouch!). That’s right; Japan will take nearly half the winning through tax.
You might say, “well, I don’t earn such a high salary, so it’s not such a big problem.”
Let’s imagine you are earning 3M JPY per year, and you have two bitcoin you want to sell. But, again, you bought them at 1M JPY and are now selling them at 7M JPY, so your taxable income from the sale is 6M JPY.
Then, you will pay 20% tax (plus 10% inhabitant, so 30% total) on approximately the first 4M JPY and 23% (plus the 10% inhabitant tax, so 33% total) on the remaining 2 M JPY.
Paying about one-third of the gains in taxes is undoubtedly better than 55%, but still nowhere near as good as what the tax would be if it were treated as capital gains: 20%. In our opinion, most investors would be pretty happy to pay the 20% tax, which would seem fair and in line with how other assets are taxed in Japan, such as property and stocks. Up to 55%, however, seems excessive and unfair.