Big Brother wants a cut

From the mysterious world of Guns N' Roses latest album comes this update to the tax issue covered in a previous post from Greg.

China to tax virtual profit at 20%: Story from the Wall St. Journal.

The mind boggles at the enforcement issue.

Comments

[David]

1.

Doesn't the institution of taxation on virtual currency immediately give players property rights on their virtual characters, equipment, levels and other game related features? If your earnings are now taxable, game companies instituting changes that negatively affect your taxable virtual assets could be sued based on that value.

[greglas]

2.

I think the answer is no. To take a simple analogy, if you own a home and your neighbor paints their house orange, this could reduce the resale value of your property. But that negative effect on your value is outside of your control. Still, you own your home.

There's a longer way to answer the question, but I think the gist of it is basically the same.

[Richard A. Bartle]

3.

So what's "virtual currency"? If the game world itself defines something to be currency, OK, that would work, but what if the players then switched to something else so as not to pay the tax? This has happened in the past when bugs and exploits have rendered a virtual currency worthless overnight - people have gone over to using stackable reagents to trade with instead. If the government is going to tax "virtual currency", its has to tax all virtual object sales.

Given that they're calling this "personal income tax", it seems that they're targeting gamers who sell virtual currency for real money, rather than those who buy it. This is a bit different to the usual way of looking at things (which is as a sales tax, rather than an income tax). Consumer protection laws wouldn't seem to apply, for example (assuming they have those in China).

The article didn't seem to say for certain that it was only cashing out that was being taxed. If in-world transactions are also being taxed, they get a whole new set of much worse problems...

Richard

[Adam Hyland]

4.

I suspect that the taxes will be applied on "cash out", rather than through some other mechanism.

[Ola Fosheim Grøstad]

5.

When a currency becomes a non-game currency then it's quite obvious that it will be open for taxation. Just like any other token that can be exchanged for production of value.

You can be taxed for income even if you don't "cash-out". E.g. it is possible to be taxed for food you grown on your own fields, houses you build for yourself, wood you chop in your own forest, etc. You have to draw a limit somewhere, but it isn't obvious where. Should artists be taxed for paintings that they have in storage and that is currently not for sale? Should people that don't use money, but rely on other mechanisms, be exempt for taxation? Of course not.

[David]

6.

Richard didn't get your thoughts if this taxation created property rights or not. What do you think about that? And does taxation affect semi-legal transactions?

[thoreau]

7.

Clearly the Chinese gov't (with all its foreign reserves) does not need the additional revenue.

So, if what my PSY 385 Motivation and Behavior prof says is true - that all behavior is motivated - why is Beijing making this move?

Because if you can tax it - you can regulate it.

All this talk about virtual property rights is interesting but within the world of the Chinese government it is a non-starter. My isk says that Beijing will not allow players to 'own' any of their virtual items. That ownership would make regulation more difficult.

[Richard Bartle]

8.

David>Richard didn't get your thoughts if this taxation created property rights or not. What do you think about that?

I don't think it has to create property rights, although I can see how they might word the legislation to imply it does. They're basically taxing income; whether that income has its value embodied in things they own, in things they don't own or in services received isn't the issue - it's the mere fact that their net wealth has increased. If the US can tax people for income obtained in terms of goods that you most certainly don't own (eg. you stole them), then taxation itself doesn't appear to imply property rights.

Of course, I'm no expert here...

Richard

[Peter S. Jenkins]

9.

Yes, income from the proverbial selling of the Brooklyn Bridge would certainly be taxable.

[GameRates]

10.

An Update on this from the Shanghai Daily

""At present, more than 40 million people play online games in China and 80 percent of them have bought virtual items online, from prepaid game cards containing time of play, game currency and weapons or arms in the cyber world. In 2007, the online transaction volume of such 'assets' reached 9.36 billion yuan (US$1.37 billion) and the figure is expected to hit 11.12 billion yuan," Zhu Shenshen reports for Shanghai Daily. "