There are suggestions that the tax avoidance by the Cardano investors may be related to the fact that digital assets are still considered to be a legal grey area in taxation.
Tax authorities in Japan will increase scrutiny of digital assets after a large-scale audit found that Japanese Cardano investors have underreported taxes by up to $6 million.
According to the reports by local news outlet Nikkei, as much as .1.4 billion yen (about $12.6 million) has been left unreported. Of this amount, gains from ADA account for about $6 million.
How Cardano Investors in Japan Have Been Trading
ADA is the third-largest cryptocurrency by market capitalization with over $70 billion in assets in circulation. It was developed as an alternative to Ethereum. Despite launching its ICO between 2015 and 2017 with a major focus on Asian markets, ADA did not become available for trading in Japan until this August.
Before that time, Japanese investors could only invest in the coin on foreign exchanges like Binance and Kraken. However, in August, Bitpoint overcame the regulatory hurdles and listed the asset on its exchange making it available for trading within the country.
ADA has spiked in value by over 1,100% since the turn of the year achieving a peak value of over $3 in early September.
However, traders who have been dealing in the coin have either failed to declare their profits or are intentionally evading taxation. The tax audit reports assert that many of the investors located in the Kanto region, as well as in the cities of Saitama, Tochigi, Gunma, Niigata, and Nagano, profited specifically from the spike in ADA’s price since the turn of the year.
There are suggestions that the tax avoidance by the Cardano investors may be because digital assets are still considered a legal grey area in taxation. According to the Nikkei report, this means that people are embracing cryptocurrency investments as a ‘tax saving measure’.
As of the time of writing, ADA was trading at $2.19 and the taxation bureaus had conducted an audit of six digital assets including Bitcoin.
Crypto Tax Law in Japan
By law, earnings on cryptocurrency trading in Japan must be declared as miscellaneous income. All income from crypto trading, mining, and lending is subject to a tax rate of up to 55%. Many have called for a review of the tax rate claiming it is “too high” as in the case of crypto.
This is not the first time tax authorities will identify cases of tax evasion. In March, a Japanese court jailed a 56-year-old man named Hideji Matsuda for evading up to $680,000 in taxes between 2017-2018. Matsuda was found guilty of being creative with his accounting, falsifying submissions, and underreporting the profit he earned from trading BTC during the period.
If the tax rate is not reviewed, chances are that many more cryptocurrency investors, and Cardano investors in particular will be found guilty of evading taxes.