China Taxes Profits from Virtual Currencies

By Blake Ellison, Nov 04, 2008 8:00pm PST Back in June, Shacknews reported on the effects of popular virtual currencies on the Chinese economy. The Chinese government has responded by taking a piece of that cottage industry for itself: the nation is instituting a 20% personal income tax on profits made from virtual currencies.

The tax, announced today by China's State Administration of Taxation, "specifically takes aim at those who buy virtual currency from gamers and surfers and sell it to others at a mark-up," according to a Wall Street Journal report noticed by Gamasutra.

Under the new law, the 20% tax will be levied on individuals--not corporations--who profit from selling virtual currencies. The policy applies to gold farmers in MMOs like World of Warcraft as well as those in China's booming market for Web-based virtual currencies, such as QQ Coins used in Tencent's popular instant messaging program QQ.

The tax has met a lukewarm reception among Chinese internet users, to the surprise of few. However, one of the detractors' arguments stands out: valuing virtual currencies for tax purposes may prove difficult, as the Chinese government has banned pegging virtual currencies to the yuan. "It's difficult to prove the original value of virtual currency," said a blogger in the Journal's report.

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