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China's virtual goods taxation sparks price increases and controversy

James Egan

China's State Administration of Taxation recently imposed a 20 percent income tax rate on profits made from virtual currency and virtual items, sparking price increases for virtual goods. While this tax rate (if actually enforced) clearly impacts the virtual space, it also affects transactions happening outside of MMO servers and virtual world grids. The taxation policy could ultimately extend to the virtual currencies linked to the largest IM providers in China such as Tencent, drastically increasing the percentage of the population affected by the new laws. Despite this, the positive benefits of eliminating gray and black markets for virtual items and currency may outweigh the drawbacks for gamers and users of the various digital services in China.

Questions remain about what will and will not be taxed in the virtual space, but it's clear that individuals who gain virtual income are expected to declare their profits and pay taxes on this, and do so within seven days of having earned the profit, according to Shanghai Daily.Taxpayers who can provide proof of the value of this property or the value of the transaction are taxed at 20 percent on their profits, while those who cannot provide sufficient verification are taxed at three percent of the total transaction value. But how many people are affected by this new system?

"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.

Despite some of the snags that have resulted, and will continue to result, in implementing such a sweeping taxation policy on the virtual realm, it's an interesting development and -- whether you fear this or find it progressive -- may very well hint at what the future holds for all of us in the west.

[Via Virtual Worlds News]

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