Are Crypto Assets Tax-Free While Consumption Tax Increases? Businesses Affected by the '5% Inclusion'

The tax reform regarding crypto assets has drawn attention to the "declaration separate taxation" with a uniform tax rate of 20% (including the special reconstruction income tax, totaling 20.315%).

However, the tax reform for the fiscal year 2028 also revises the treatment of consumption tax. While the sale of crypto assets remains "tax-free" after the reform, there is a possibility that the consumption tax paid by some businesses may increase.

The key point is that 5% of the amount from the sale of crypto assets will now be included in the calculation of the "taxable sales ratio." This change will not affect individual investors who only buy and sell crypto assets, but it is a significant change for businesses dealing with crypto assets.

The seventh installment of the series "Understanding the Reality of Crypto Asset 'Separate Taxation' by Tax Accountant Izumi" organizes the mechanism of the "5% inclusion," the businesses affected, and the measures that can be taken based on the explanation by tax accountant Izumi Aya.

Why Does the Deduction Decrease Even Though It Remains 'Tax-Free'?

Consumption tax is a tax that broadly seeks to impose a burden on domestic consumption, but the transfer of payment methods like money is considered inherently unsuitable and is thus tax-free.

Crypto assets were classified as "similar to payment methods" in the tax reform of fiscal year 2017, and their transfer has been tax-free and excluded from the calculation of the taxable sales ratio. In this revision, they are classified as "similar to securities" and remain tax-free.

According to the Ministry of Finance's explanation, this revision takes into account the reality of the expanded use of crypto assets as investment targets and the transfer of transaction regulations to the Financial Instruments and Exchange Act.

Here, it is important to confirm the mechanism. The consumption tax paid by businesses is calculated by subtracting the consumption tax paid on purchases and expenses from the consumption tax collected from sales (input tax deduction).

The taxable sales ratio refers to the proportion of taxable sales (sales subject to consumption tax) in total sales. If the taxable sales amount is 500 million yen or less and this ratio is 95% or more, the entire amount of consumption tax paid on purchases can be deducted. If either condition is not met, only a proportionate amount can be deducted.

Before the reform, the transfer of crypto assets was not included in either the numerator or the denominator. After the reform, similar to stocks and other securities, an amount equivalent to 5% of the transfer price will only be added to the denominator. This means that businesses selling a large amount of crypto assets will see their taxable sales ratio decrease.

It should be noted that the taxable sales amount used to determine whether it is 500 million yen or less does not include the transfer of crypto assets. The effect of the 5% inclusion only applies to the taxable sales ratio.

The number "5%" can be misleading. Tax accountant Izumi explains:

[Izumi's Explanation: '5%' Does Not Mean a 5% Increase in Burden]

First, let’s clarify a common misunderstanding. The "5%" does not mean that the burden of consumption tax increases by 5%. Since the transfer of crypto assets remains tax-free after the reform, the amount of consumption tax related to sales does not change. What changes is only the input tax deduction amount. The actual impact can be much smaller or much larger than 5%.

The magnitude of the impact is determined by how large the transfer price of crypto assets is compared to other taxable sales.

Let’s check the magnitude of the impact with specific examples provided by tax accountant Izumi.

Assuming there are no other tax-free sales besides crypto assets, for business A, which has a taxable sales amount of 50 million yen and an annual transfer price of 400 million yen for crypto assets, 20 million yen will be added to the denominator. The taxable sales ratio will drop from 100% to about 71.4%.

If the consumption tax paid on purchases is 5 million yen, and using the proportional allocation method (where the deduction amount is uniformly allocated based on the taxable sales ratio), the deductible amount decreases to about 3.57 million yen. The burden increases by approximately 1.43 million yen.

On the other hand, for business B, which has a taxable sales amount of 100 million yen and a transfer price of 100 million yen, the ratio remains at about 95.2%, and since the taxable sales amount is also below 500 million yen, it meets the conditions for full deduction, resulting in no impact.

It’s the 'Transfer Price,' Not 'Profit' That Matters

Depending on how transactions are conducted, it is not difficult to reach a transfer price similar to that of business A. Tax accountant Izumi warns:

[Izumi's Explanation: Be Cautious of Round-Tripping and Exchanges Between Crypto Assets]

It is important to note that what is included in the denominator is the transfer price, not the profit. If you repeatedly buy and sell using the same funds, even with a small capital, the total transfer price can grow indefinitely. Business A's 400 million yen can be reached by turning over 10 million yen 40 times.

This is not just the case when converting to yen. Exchanges between crypto assets also count as transfers, and the amount of the transfer is based on the market value of the received crypto assets. Just because you haven’t converted back to yen doesn’t mean it’s irrelevant.

Whether or not a profit was made is also irrelevant. Even if there is a loss, if the transfer price is large, the taxable sales ratio will decrease similarly.

The fact that exchanges between crypto assets count as "transfers" is also consistent with the treatment of income tax discussed in the second installment of this series. Even if you haven’t converted back to yen, it will still affect the calculation of consumption tax.

Businesses with a high number of transactions will also incur larger total trading fees paid to exchanges.

According to tax accountant Izumi, in the case of the proportional allocation method, the consumption tax amount related to these fees will also be multiplied by the reduced taxable sales ratio.

On the other hand, under the individual allocation method, trading fees are classified as taxable purchases only for tax-free sales, so they will not be eligible for deduction before and after the reform.

Businesses Affected and Not Affected

So, which businesses will be affected? According to tax accountant Izumi, the targets are those who declare under the standard taxation method (calculating input tax deductions based on actual amounts) and have taxable sales in addition to the transfer of crypto assets. Among them, the following three are particularly noted for their significant impact:

[Izumi's Explanation: Businesses with Significant Impact]

• Crypto Asset Trading Businesses: They conduct a large volume of transactions with customers, so the 5% inclusion can significantly lower their taxable sales ratio, leading to serious impacts on input tax deductions.

• Web3 Businesses Using Crypto Assets for Payments: Each time they receive payments in crypto assets and convert them to yen or pay with crypto assets, the transfer price accumulates.

• Market Makers and Arbitrage Businesses: Even with low profit margins, they have large transaction volumes, so the impact of the 5% inclusion accumulates.

Conversely, exempt businesses that do not calculate deductions or businesses applying the simplified taxation system that does not use the taxable sales ratio will not be affected.

Cases like business B, which can maintain the conditions for full deduction even with the 5% inclusion (taxable sales below 500 million yen and taxable sales ratio of 95% or more), are similar.

Businesses that only engage in buying and selling crypto assets will also not be affected. According to tax accountant Izumi, if there are no other taxable sales, the taxable sales ratio will remain at 0% before and after the reform.

However, it is important to note that businesses with a taxable sales ratio of 0% cannot deduct input tax related to fees directly incurred in transactions.

Non-Taxation of Lending is 'Reverse Position'

In this reform, the lending of crypto assets has also been included as a tax-free transaction. This is based on the fact that the lending of securities is tax-free, and some electronic payment methods that involve stablecoins have also been made tax-free simultaneously.

This change will reverse the benefits and losses depending on the position. First, regarding the impact on lenders who receive fees, Tax Accountant Izumi explains as follows.

[Explanation by Tax Accountant Izumi: The taxable sales ratio for lenders will decrease doubly]
From the perspective of those who will incur losses. For businesses providing lending services, the fees have been taxable sales until now. After the revision, they will become non-taxable sales, so they will be excluded from the numerator, but the full amount will remain in the denominator.
Unlike transfers that can be settled at 5%, the consideration for loans is not subject to the 5% inclusion, so the full amount goes into the denominator. Businesses that engage in both sales and lending will see their taxable sales ratio pushed down doubly.

In contrast, those who cannot deduct consumption tax on the side paying the fees will have a lighter burden if the fees decrease. However, Tax Accountant Izumi states that if the fees remain unchanged, the beneficiaries will be the lenders who will no longer have to pay consumption tax.

Measures: "Proportional Ratio" and "Simplified Taxation"

Regarding cases where the taxable sales ratio significantly decreases, Tax Accountant Izumi presents two countermeasures.

The first is to use the "proportional ratio corresponding to the taxable sales ratio" through an individual response method (a method of calculating purchases by categorizing them by use). This method uses ratios based on the number of employees, business divisions, floor area, etc., and requires approval from the tax office chief.

However, there are restrictions on the situations and procedures in which it can be used. Tax Accountant Izumi warns as follows.

[Explanation by Tax Accountant Izumi: Points to Note about Proportional Ratios]

• It cannot be used for the overall proportional allocation method. The proportional ratio is for the individual response method.
• It cannot be used to determine whether it is 95% or more. The determination of whether full deduction is possible will be based on the original taxable sales ratio, regardless of whether the proportional ratio has been approved (Consumption Tax Law Basic Notification 11-5-9).
• It is not guaranteed that an application will be approved. It is necessary to explain that it is reasonable in light of the actual situation of the business.

Additionally, there is a deadline for approval applications. According to Tax Accountant Izumi, in principle, approval must be obtained by the end of the taxable period in which it is intended to apply.

If the application is submitted by the end of the period and approval is obtained within one month from the following day, it can be applied from that taxable period. However, there is no mechanism to consider it approved after a certain period, so it is necessary to submit it early, taking into account the review period.

The second measure is the option of the simplified taxation system. Tax Accountant Izumi points out that since simplified taxation does not use the taxable sales ratio, it may become relatively advantageous compared to the regular taxation after the revision.

However, there are restrictions on simplified taxation, such as having a taxable sales amount of 50 million yen or less in the base period, prior notification, and a principle of continuity for two years. Tax Accountant Izumi urges early calculations, stating that it will be too late if one realizes just before the application starts.

Expected Application from January 2028: Doubts about "5% Like Stocks"

The revision of the consumption tax will apply to transactions occurring after January 1 of the year following the enforcement date of the Financial Instruments and Exchange Act, etc. This is the same starting point as the separate taxation of income tax.

The law was promulgated on July 23, 2026. Tax Accountant Izumi stated that as of the article's publication, the government ordinance that sets the enforcement date could not be confirmed, but it is expected to apply from January 1, 2028. Until then, declarations must be made under the current law, and the 5% cannot be included in the denominator in advance.

According to the Ministry of Finance's explanation, the 5% inclusion for securities is a measure based on the nature of transactions that are frequently traded while having low costs. Cryptocurrencies have been treated the same way due to their status as investment targets.

In response, Tax Accountant Izumi questions the application of the same 5% to cryptocurrencies.

[Explanation by Tax Accountant Izumi: Validity of the 5% Figure]
Furthermore, it is said that the 5% figure for securities originally referred to an old system that regarded the income from selling stocks as 5% of the sale price.
In other words, it is a figure that roughly replaces the level of profit from trading in the stock market. There is no evidence that the profit margin from trading cryptocurrencies has been independently verified. (Omitted)
At least in relation to certain cryptocurrencies, 5% does not match reality. The issue here is not whether the burden is heavy or light, but whether the figure of 5% is reasonable as an approximation of trading profits. "Certain cryptocurrencies" include two things with opposite directions.

• Cryptocurrencies with high speculation and large price fluctuations: It is not uncommon for the trading profits to greatly exceed 5% of the transfer consideration. 5% is too small.
• Cryptocurrencies currently used as payment methods: The very idea of 5% based on the assumption of trading profits as an investment target does not apply.

The difference in treatment compared to electronic payment methods is also a point of discussion. The transfer of electronic payment methods will still be excluded from the calculation of the taxable sales ratio after the revision, so the ratio will only decrease when using cryptocurrencies for the same payment.

Tax Accountant Izumi states that if businesses start choosing payment methods based on tax advantages or disadvantages, it would be undesirable from the perspective of neutrality in transactions.

Summary: Businesses Should Estimate Based on "Sale Amount"

To summarize the key points of the consumption tax revision regarding cryptocurrencies:

• The non-taxable status of cryptocurrency transfers remains unchanged. What changes is the calculation of the taxable sales ratio.
• 5% of the transfer consideration will enter the denominator, and if it falls below 95%, full deduction of the input tax amount will not be possible.
• What enters the denominator is not profit but the sale amount. It accumulates even in cases of round-trip trading, exchanges between cryptocurrencies, or transactions that incur losses.
• Exempt businesses, businesses under simplified taxation, and businesses that only engage in cryptocurrency trading will not be affected.
• Lending fees will be non-taxable, and the taxable sales ratio for lenders will decrease. For businesses that engage in both sales and lending, it will decrease doubly.
• There are measures such as "proportional ratio" and simplified taxation, but both have deadlines and restrictions.

The start of application is expected in January 2028. Businesses dealing with cryptocurrencies should confirm how their taxable sales ratio will move along with the separate taxation of income tax.