Asia encryption tax policies overview, which countries are more friendly?

Singapore and Hong Kong have become the center of encryption in Asia with friendly tax policies. This article is derived from an article by Ryan Yoon, compiled and translated by Foresight News. (Previous context: Ohio lawmakers propose the BTC Reserve Act: as the depreciation of the US dollar accelerates, BTC is needed to protect tax revenue) (Background: A quick look at 'Germany', the first country to recognize BTC transactions as legal, encryption tax and regulatory system) Asian encryption tax policies. Summary Tax policies take various forms, including tax exemption, progressive tax, uniform tax, transitional tax, and transaction-based tax, reflecting the economic strategies and policy priorities of different countries. Governments must ensure tax revenue, while investors are concerned about excessive taxation, leading to capital flowing to overseas exchanges. In order for Cryptocurrency tax policies to be successful, policymakers need to consider both tax revenue and the healthy development of the encryption market. 1. Cryptocurrency transactions and taxation Since the emergence of the Cryptocurrency trading market, the taxation of Cryptocurrency transactions has been a hot topic. The core conflict lies in the different priorities of the government and investors. The government emphasizes the necessity of ensuring tax revenue, while investors are concerned that excessive taxation will lead to a decline in profitability. However, taxation is an inevitable part of modern societal systems and a key driver of market development. In particular, Cryptocurrency taxation is expected to lay the foundation for the market through three key effects. First, it can establish a formal market. Examples from the stock market demonstrate that taxing profits or transactions represents official recognition of the relevant assets, which helps establish a stable foundation for encryption market activities. Second, it can enhance investor protection. The US Consumer Financial Protection Act and the Consumer Financial Protection Bureau (CFPB) established in 2010 are examples of regulating to protect investors. In the Web3 market, restrictions on indiscriminate product releases and misleading advertisements help prevent fraud and protect investor rights. Lastly, taxation can accelerate the integration of Cryptocurrency into the existing financial system by clarifying its legal status. This integration can enhance market stability and trust. However, given the uniqueness of the Cryptocurrency market, it is difficult to expect taxation to have positive effects based solely on stock market experience. Given the rapid rise of Cryptocurrency, many existing tax systems are criticized as purely extracting value, leading to an increasingly intensified conflict between governments and investors. In this context, this report will study the Cryptocurrency tax systems of major Asian countries, analyzing the realization of the three effects mentioned earlier: market establishment, investor protection, and system integration, in order to provide a balanced perspective for investors and governments. 2. Comparative analysis of Cryptocurrency tax systems in major Asian countries Analyzing the Cryptocurrency tax systems of major Asian countries reveals five different policy types. These differences reflect the economic structure and policy priorities of each country. For example, Singapore exempts Capital Gains Tax and only levies a 17% income tax when Cryptocurrency is recognized as business income. This flexible approach consolidates Singapore's position as a global Cryptocurrency center. Similarly, Hong Kong is considering tax exemptions for investment income from hedge funds and family offices, further enhancing its attractiveness to institutional investors. In contrast, Japan imposes a high tax rate of up to 55%, focusing on suppressing speculative activities. However, Japan is also considering a proposal to lower the tax rate to 20%, which may indicate a potential change in Japan's current encryption tax approach. 2.1 Tax-exempt countries: Singapore, Hong Kong, Malaysia Singapore, Hong Kong, and Malaysia, as major financial centers in Asia, adopt a capital gains tax-exempt policy for Cryptocurrency, consistent with their long-term economic strategies. The tax exemption policies of these countries are consistent with their TradFi framework. Historically, they have attracted global capital through low tax rates. Maintaining this stance towards Cryptocurrency demonstrates policy consistency and a clear commitment to their economic principles. This strategy has yielded significant results. For example, Singapore became the largest Cryptocurrency trading center in Asia in 2021. With no tax burden on investment profits, investors actively participate in the market, accelerating its rise. However, tax-exempt policies are not without limitations. Major challenges include the risk of overheated speculation and a direct reduction in government tax revenue. These countries are taking alternative measures to address these issues. They ensure indirect tax revenue through the development of the financial services industry and maintain market stability through strict regulation of exchanges and financial institutions. 2.2 Progressive tax countries: Japan and Thailand Japan and Thailand implement high progressive tax rates on Cryptocurrency trading profits. This policy taxes high-income groups, reflecting a wider social goal of 'wealth redistribution'. In Japan, the highest tax rate is 55%, consistent with the policy for TradFi assets. However, such high tax rates also have significant drawbacks. The most significant problem is 'capital flight', where investors move assets to tax havens such as Singapore, Hong Kong, or Dubai. There are also concerns that heavy taxation may suppress market rise. 2.3 Uniform tax rate country: India Source: ISH News Youtube India imposes a uniform tax rate of 30% on Cryptocurrency trading profits. This approach differs from the progressive tax system adopted in the TradFi market, reflecting its strategic choice to achieve two key goals: administrative efficiency and market transparency. India's uniform tax rate policy has produced several significant effects. First, the tax system is simple and clear, reducing the administrative burden on taxpayers and tax authorities. In addition, applying the same tax rate to all transactions minimizes tax avoidance strategies. However, the uniform tax system also has significant limitations. The biggest concern is that it may discourage small-scale investors from entering the market. Even minimal profits are subject to a high tax rate of 30%, imposing a heavy burden on small-scale investors. Moreover, applying the same tax rate to high-income and low-income groups has raised questions about tax fairness. The Indian government is aware of these issues and is currently exploring solutions. Proposed measures include dropping the tax rate for microtransactions and providing incentives for long-term holders. These efforts aim to retain the benefits of the uniform tax system while promoting market stability and rise. 2.4 Transitional approach: South Korea Source: Kyeonggi News South Korea has taken a cautious approach to Cryptocurrency taxation, reflecting a high degree of uncertainty in the Cryptocurrency market. A clear example is the financial investment income tax, originally scheduled to be implemented in 2021, being postponed to 2025. The implementation of Cryptocurrency taxation has also been further delayed to 2027 following the same approach. This transitional approach has clear advantages. It allows the market to rise organically while providing time to observe the policy outcomes of other countries and global regulatory trends. By studying the cases of Japan and Singapore, South Korea aims to establish an optimized tax framework post-facto. However, this approach also presents challenges. The lack of a clear tax system may cause market chaos and increase the risk of overheated speculation. Additionally, the lack of regulatory infrastructure may affect investor protection, hindering long-term market development. 2.5 Transaction-based taxation: Indonesia Unlike other Asian countries, Indonesia has implemented a unique transaction-based taxation system. This system levies a 0.1% income tax and a 0.11% value-added tax (VAT) on transactions. This policy was introduced in May 2022 as part of Indonesia's broader financial market modernization reform. Transaction taxes are part of Indonesia's broader efforts to modernize its financial market. The tax aims to create a more transparent and competitive financial market by discouraging excessive speculation and encouraging long-term investment.