The Japanese government is preparing to start taxing transactions involving bitcoins and other virtual currencies.
The new guidelines proposed by the Japanese cabinet will call for defining the virtual currency as a commodity rather than a currency, according to the financial newspaper Nikkei.
Unlike conventional money, bitcoin is a digital currency that is bought and sold on a peer-to-peer computer network independent of central control. Over the past year, the total value of all the bitcoins minted is about $7 billion.
Nikkei said the following transactions will be subject to tax: gains from trading bitcoins on online exchanges, purchases made with bitcoins, and companies earning revenue from bitcoin transactions.
The new rules are expected to prohibit banks from handling bitcoins and securities firms will be barred from brokering bitcoin trades. The rules are expected to be written as to be applicable to similar currencies in future, the Nikkei reported.
Last week, US Federal Reserve Chair Janet Yellen said the US Congress should consider regulating virtual currencies such as bitcoin.
The new proposals are a reaction by Japan’s government in the wake of the collapse of Mt. Gox – once the world’s once largest bitcoin exchange.
Mt. Gox filed for bankruptcy protection in Japan on Friday, saying it may have lost 850,000 bitcoins due to hacking into its computer system. The total value of the loss is about half a billion dollars.
The virtual currency has been charged as allowing criminal enterprises a new way to launder money, and purchase and sell illicit products.
Other countries have taken a dim view of the currency.
Recently, Beijing banned financial institutions from trading in bitcoin due to the risks involved. In response, Shanghai-based BTC China, the world’s largest bitcoin exchange by volume, imposed new regulations to curb bitcoin trades.
And Russia warned against the use of bitcoin, saying treating it as a parallel currency is illegal.