Japanese Prime Minister Fumio Kishida has proposed Web 3.0 as a pillar of economic reform. Lawmakers released a white paper to address issues such as digital currency tax reform and NFTs, with new bills and Metaverse-related projects expected next year.
Fumio Kishida said in his speech: As the workforce shrinks and there is an urgent need to take advantage of digital technology, Japan will actively promote the digital transformation of the public and private sectors.
As a country that only asked its citizens to phase out floppy disks in September this year, Japan has been criticized for the pace of its embrace of a new technological revolution. From regulation to taxation, the Japanese government’s cautious approach to Web 3.0 is also threatening the country’s position as a global leader in the gaming industry.
Things may change now. After Fumio Kishida was elected prime minister, he quickly put forward Web 3.0 as the backbone of Japan’s economic reform, and tried his best to get rid of the traditional Japanese government’s inefficient decision-making style when promoting this strategy. Since this year, a new group of Japanese officials have been mulling policies on digital currency and Web 3.0, issuing reports and proposing to update existing laws and regulations.
A push by the Prime Minister and officials
Fumio Kishida, who was born in the Liberal Democratic Party, will be elected Prime Minister of Japan in November 2021. Web 3.0 fits into his government’s agenda of economic recovery and revitalization of local communities, can attract private investment back to Japan and deliver on his campaign promises of economic growth and wealth distribution.
The government of Fumio Kishida has set up an office under the Ministry of Economy, Trade and Industry dedicated to Web 3.0 policy, while other government agencies, including those in charge of finance, taxation and justice, may also be involved in formulating digital currency policy.
Some government officials have taken a leading role in Web 3.0, compressing a policy drafting process that could take months into weeks.
Former ICT policy minister and well-known pro-blockchain politician Takuya Hirai appointed Liberal Democratic Party politician Masaaki Taira to lead the NFT policy review established in January this year Project Team. Soon after the project team was established, Taihara Masaki said on social media that NFTs and blockchain represent Japan’s growth strategy.
Masaki Taihara, a seasoned lawmaker who has held key positions since 2005, has a deep understanding of how LDP decision-making works and persuaded Fumio Kishida to support cryptocurrency and Web 3.0 policies.
Separately, Liberal Democratic Party politician Akihisa Shiozaki, who was elected to the House of Representatives last year, is leading the development of Web 3.0 policy proposals.
In April this year, the NFT Policy Review Project Team released the “NFT White Paper – NFT Strategy in the Era of Japan’s Web 3.0”. The white paper states that Japan needs to have a Web 3.0 minister and a one-stop consultation platform so that private companies and entrepreneurs no longer need to contact multiple ministries. Much of the white paper clarifies the guidelines and standards for Web 3.0 policy.
Shiozaki told the media that the white paper is unique because it took only three months and was drafted by government officials and lawyers. Following the traditional bureaucratic decision-making route, it would be a lengthy process involving about 10 meetings, spaced two to three weeks apart, where the government would convene academics, set up an advisory committee and seek public input. Now they’ve bypassed the process, cutting the time by nine months. Otherwise, we would be subject to a lot of interference from various stakeholders. He says.
Akihisa Shiozaki said that because NFT has attracted a lot of attention, they started in this field. Although the title of the white paper is NFT, the subtitle is the NFT strategy in Japan’s Web 3.0 era, which has broadened many fields.
The white paper was then presented to the Prime Minister. On May 5, Fumio Kishida gave a speech in London, promising to create an environment for the promotion of Web 3.0.
With a shrinking workforce and an urgent need to leverage digital technologies, Japan will actively promote digital transformation in both the public and private sectors. Japan will develop an environment that promotes Web 3.0, such as blockchain, NFT, and the metaverse, and realize a society that promotes the birth of new types of services. he said in his speech.
The promises Kishida made in his speech brought a powerful political push to support Web 3.0 policies. Shiozaki Akira said.
In June, Web 3.0 was mentioned in the “Gutai Policy” (Basic Policy for Economic and Fiscal Operation and Reform), a document outlining the Japanese government’s broad plans for the future, stating that cryptocurrency legislation will be submitted to Japan’s parliament next year.
In August, Fumio Kishida reshuffled the cabinet and appointed Taro Kono, a well-known politician, as Japan’s digital minister. Known for his willingness to fight bureaucratic traditions, Kono is active on social media. While serving as foreign minister, he met with Ethereum co-founder Vitalik Buterin. He also asked his fans to create digital avatars. Kono will be a key figure in advancing Japan’s Web 3.0 policy.
On October 19, an internal Japanese government document was disclosed, saying that regulators loosened cryptocurrency rules as early as December this year, simplifying token listing procedures and lowering market entry barriers to help start-ups compete with established companies.
Genki Oda, vice-president of the Japan Virtual and Crypto Assets Exchange Association, commented that by March 2024, the association could ease the scrutiny of virtual currencies entering Japan.
Tax reform and talent shortage
The development of digital currencies faces a major hurdle in Japan with tax issues. Currently, Japan imposes a 30% tax on the gains and unrealized gains of crypto investors, which means that if the digital currency is listed on an active market such as a large crypto exchange, the issuing company must pay taxes on the unrealized gains.
Yuzo Kano, co-founder of crypto exchange bitFlyer, said the Japan Blockchain Association (JBA) wants the government to abolish corporate tax on unrealized gains from companies issuing or holding cryptocurrencies, at the same 20 percent rate as stocks. Crypto capital gains are taxed proportionally and only when individuals convert cryptocurrencies into fiat currency. The NFT White Paper also suggests that taxes should only be paid when the gains are made.
In August, Japan’s Financial Services Agency and the Ministry of Economy, Trade and Industry said they intend to revise the corporate tax law so that businesses pay taxes only when they profit from the sale of tokens.
Debates on tax issues in Japan typically take place from mid-November to early December and are formalized in the ruling party’s annual tax reform proposals.
The Japan Cryptoasset Business Association and the Japan Blockchain Association presented tax reform proposals to the government. Yuzo Gana will submit a proposal to the Financial Services Agency (FSA) of Japan as head of JBA and plans to explain the proposal to Web 3.0 proponents in Japan’s parliament.
Shiozaki Akihisa said the tax reform is a litmus test for whether the Japanese government is taking the crypto industry seriously.
Sota Watanabe, founder of blockchain trading platform Astar Network, said that because of these tax laws, Japan is currently at a significant disadvantage compared to jurisdictions such as Singapore and Dubai.
On the other hand, Masakazu Masujima, a partner at Mori Hamada and Matsumoto law firm and a former official at the Financial Services Agency, suggested that the currently cumbersome token listing process should be simplified.
Regarding NFTs, Shiosaki said that NFT-related companies that are seeking accounting and auditing services have complained that accounting firms do not like to deal with cryptocurrencies because of the lack of clear accounting rules and precedents.
There is also the question of how to attract the best talent in the crypto industry to develop in Japan. In Watanabe’s view, Japan does not have many successful crypto projects and lags behind in accumulating talents. While the tax reform is welcome, the government needs to do more to attract entrepreneurs to Japan, he said. He suggested introducing new visas to attract top talent from around the world.
Masakazu Masujima said that he believes that the “NFT White Paper” is only a summary of small changes in the legal system, not a big strategy. Currently, the FSA is more concerned with the decisions of the international regulatory community than the formulation of local policies. “It’s time for us to paint a big picture,” he said.
Citizens need to be more open
From the top-level design, Fumio Kishida’s Web3.0 is progressing efficiently, but the biggest obstacle is to let everyone understand what we are talking about. Shiozaki Akira said.
In Japan, fax machines are still common, and many people still use cash for business. Some administrative procedures can be done online, but many Japanese agencies still require applicants to bring paper documents to the office and stamps to confirm their identity.
The Japanese government developed an app, Cocoa, to track the Covid-19 outbreak, but it was unpopular and didn’t have the desired effect.
As early as 2016, Japan launched a digital ID system, but the penetration rate is not high. Recently, the Japanese government has stepped up its digital push, telling the reluctant public that they must register for digital IDs or risk losing access to public health insurance. This new digital ID, called my number, has a built-in chip and is linked to a driver’s license and public health insurance plans. Health insurance cards currently in use will be discontinued by the end of 2024.
After a few scandals over issues such as leaks, many Japanese do not trust the government’s handling of data.
Hidenori Watanave, a professor at the University of Tokyo, said it may take something drastic for the Japanese people to accept change, just as Japan was transformed into an economic powerhouse after its devastating defeat in World War II. He said: “There is resistance everywhere.
In a recent interview with The Associated Press, Taro Kono acknowledged that more work is needed to convince Japanese citizens of the benefits of digitalization. To create a digital society, we need to work hard to develop new infrastructure.
Once, Japan gave birth to gaming giants like Nintendo and Sega, and games like Super Mario, Sonic the Hedgehog and Game Boy have taken the world by storm for decades. However, in the emerging GameFi (encrypted blockchain gaming) space, few Japanese companies have achieved the leadership they once had in the gaming industry. Analysts worry that if that doesn’t change soon, the entire industry is at risk.
In July, the University of Tokyo announced that it would open its first courses in the Metaverse, offering people from high school students to employed adults.
On September 2, the Japanese government awarded NFT awards to seven mayors for their efforts to revitalize local communities using digital technology. This is the first time the Japanese government has used NFT to honor officials, and Fumio Kishida also attended the award ceremony. However, the issued NFT is non-transferable, which means that it cannot be traded in the market and is only used as a souvenir.
The corporate world is relatively more aggressive. In July, Japanese banking giant Sumitomo Mitsui Banking jumped on the Web 3.0 car, launching NFTs and Web 3.0 projects in partnership with blockchain startup HashPort.
Before that, SoftBank invested in several Web 3.0 companies through its Vision Fund 2. Japan’s largest banking group, Mitsubishi UFJ Financial Group, signed an agreement with leading blockchain investment firm Animoca Brands to support the development of the NFT market, while financial services institution Nomura Securities entered into an agreement with SBI Group to launch an investment-focused Web A new subsidiary of the 3.0 project.