News, research and discussion on virtual goods, currencies and economies globally.

20% Tax Rate on Virtual Currency Brokering in China?

"The State Administration of Taxation said on its Web site Wednesday (in Chinese) that China will impose a personal income tax of 20% on profit from virtual money. The announcement, which was distributed to local tax bureaus, specifically takes aim at those who buy virtual currency from gamers and surfers and sell it to others at a mark-up. Taxation officials are granted the right to determine the original price of online virtual currency if the individual fails to provide proof of an original price, it says."- Juliet Ye @ WSJ's China Journal

The quotation would suggest that the actual gold farmers would not directly be affected by the taxes, but indirectly, via brokers paying less. It would also be nice to know how Chinese officials determine the original prices.

"The policy would cover China’s legions of online gamers, who can use online virtual currency to buy better equipment and new powers for their online warriors. But it also affects millions of others who use virtual currencies on instant-messaging services and Web portals."

This might be the case in services where the virtual currency is increasingly bought from intermediaries. Yet, I can't see how this affects the average player who buys virtual currency and items from the service operator, while brokers might increase prices due to taxes. I guess the legislation includes more detailed descriptions. Could someone with skills in Chinese language interpret them?

 

Via Massively, via The Wallstreet Journal's China Journal.

"personal income tax of 20%

"personal income tax of 20% on profit from virtual money" -- I wonder if this is on top of normal income tax? I don't see why virtual item trade profits should be taxed differently from any other income: see Western scholarship on this issue.

"But it also affects millions of others who use virtual currencies on instant-messaging services and Web portals." -- I guess this refers to Q coin trading.

Virtual World News further

Virtual World News further explain the issue. Google translations included. http://www.virtualworldsnews.com/2008/11/china-levies-20-tax-on-virtual-currencies.html

PlayNoEvil states in-game taxes are probably not affected by this: http://playnoevil.com/serendipity/index.php?/archives/2273-20-percent-real-tax-on-virtual-income-in-China.html

There seems to be a number of different interpretations of the announcement by the Chinese taxation bureau. The announcement nor the news article in WSJ do not explicitly express whether virtual-to-virtual transactions are being taxed or not, or is it only virtual-to-realmoney transactions that are being taxed. If the latter is the case, then how the situation has even changed? As Vili also pointed out, real money profits are naturally taxed anyway. Perhaps this was a wake-up call from Chinese taxation bureau.