Japanese Tax Agency Wants to Tax NFT Sales and Crypto Gaming Profits

January 18, 2023 Japan Blockchain

The Japanese tax body has signaled an intention to tax non-fungible token (NFT) sales and the profits earned by crypto and blockchain gamers.

In an FAQ-type document released by the National Tax Agency (NTA), the body explained “guidelines” for tax officers dealing with NFT-related “cases” where taxes such as consumption tax (Japan’s equivalent of VAT) should be applied.

The guidelines are not yet enshrined into the Japanese tax code or other laws, but will likely be used by local or central tax authorities and NTA officers until parliament amends the relevant legislation.

The agency advised officers and those wishing to declare their transactions to “confirm” “details of calculation methods” for taxation when making annual tax returns with “experts” and officers specializing in the matter.

But in the case of most secondary-market sales, NFT traders have been advised to make declarations – and pay capital gains tax on their profits.

Source: Dune

NFT creators and traders will be able to “deduct expenses” from their declarations, however. But the recipients of NFT giveaways may also have to pay tax on any free tokens they receive.

Taxes on Table for Japanese NFT Traders and Crypto Gamers
NFT advocates will likely be buoyed by the fact that the FAQs also clarify that NFTs qualify as a form of intangible property under national law. The NTA noted that tokens that had been “stolen or disappeared due to unauthorized [wallet] access” may not be subject to taxation.

There was mixed news for crypto and blockchain gamers, however. The NTA conceded that “it is complicated to evaluate each individual transaction” in the case of play-to-earn (P2E) titles, but advised that crypto earnings from games should be classified as “miscellaneous income” on annual income tax declarations.

But this need only be the case for games that use tokens that can be exchanged on crypto trading platforms or converted to fiat.

“In-game” currencies that cannot be used outside a single game’s ecosystem “are not considered taxable,” the NTA explained.