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November 6, 2008

Chronicles of Augmented Reality — Episode 1: China does U-turn on online money-making


Mure Dickie's November 3, 2008 Financial Times story reported on China's apparent volte-face this week from its previous position that strictly forbid players of online computer games from making real money from trade in virtual currencies.

Here's the article.

    China U-turn on online money-making

    Less than two years after “strictly forbidding” players of online computer games from making money from trade in virtual currencies, China has announced a 20 per cent tax for such income.

    The apparently contradictory rulings from different arms of the Chinese state highlight the difficulties faced by governments worldwide as they seek to regulate and tax the growing economic activity centred on “massively multi-player online role-playing games”.

    Tax authorities generally take the view that all income from online business should be taxable, even if profits are derived from virtual worlds.

    However, the practicalities of collecting those taxes — and valuing virtual assets — continue to be elusive.

    Trade in virtual items — ranging from “gold” coins to magic swords and in-game property rights — is estimated to be worth more than Rmb10bn ($1.45bn, €1.15bn, £900m) a year in China alone, according to consultancy iResearch.

    The widening trade in the virtual money used within games — and their burgeoning use for other transactions — last year prompted China’s ruling Communist party and the central bank to ban trading in virtual currencies and their use for purchases of “material products”.

    However, in what amounts to tacit recognition that last year’s restrictions have had little impact, the State Administration of Taxation has announced that income from the sale of virtual currency with “increased value” is taxable at the same 20 per cent rate applied to real estate and other transactions.

    Beijing tax officials declined to explain how they would implement the vaguely worded ruling, with local media saying detailed regulations could be announced in the coming days. However, Chinese analysts and games players suggested that the authorities’ attempt to tax the virtual currency trade would fare no better than the previous effort to ban it.

    The contradictions between last year’s order and the tax ruling showed that authorities were “not very clear about online regulation”, said one industry analyst.

    “If they can successfully implement this tax in the next two years, then I will jump over Mount Everest,” sneered one contributor to a discussion of the ruling on the popular Netease portal.

    Another commentator involved in the growing business of “farming” virtual money and items used in games for sale to cash-rich but time-poor players in the US, Europe and other developed countries asked rhetorically if he or she could expect to benefit from the same tax incentives as other Chinese export businesses.

    “I sell virtual currency to foreigners — will I get an export tax rebate?” the commentator said.

    Despite last year’s restrictions, trade in virtual currencies used in games such as “World of Warcraft” or issued by online companies such as Hong Kong-listed internet group Tencent is carried out openly on Chinese auction websites.

    Tencent’s widely popular “QQ Coins”, for example, were on Sunday being offered at a rate of one to Rmb0.91.

November 6, 2008 at 12:01 PM | Permalink


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I hope that you honestly don't think that I was going to snicker when I saw the image.



Meanwhile, back at the post, I wonder if you can pay off the tax collector with a virtual bribe.

Posted by: Rocketboy | Nov 6, 2008 6:52:45 PM

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