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China To Add 20% Tax On Virtual Goods Profits

China To Add 20% Tax On Virtual Goods Profits

November 4, 2008 | By Eric Caoili

November 4, 2008 | By Eric Caoili
More: Console/PC

China's State Administration of Taxation announced that it will impose a 20 percent personal income tax on profit from virtual money.

The tax specifically targets traders and operations that buy virtual currency from others with the intention to sell it at a mark-up, such as "gold farmers" and account sellers in online games. The tax will also affect resellers in the region who trade in virtual currencies for instant-messaging services and web portals.

According to a report from the Wall Street journal, a poll by Chinese online portal indicates that over 70 percent out of some 3,000 people voted against the new tax, with many worried about how the sum of property will be evaluated.

Blogger Ruan Zhanjiang wrote that, "Many game players are classmates or friends in real life, thus most of them won't have credentials when trading virtual money," says blogger Ruan Zhanjian. "It's difficult to prove the original value of virtual currency, though."

Taxation officials have reportedly been granted the right to judge the value of a particular virtual currency if an individual cannot provide proof of its original price.

Some, however, believe that the new tax will protect their online property rights and help guard them from identity theft, which has been growing alongside the virtual currency trading market.

The WSJ claims that a research firm's study shows China's virtual currency market growing at a yearly rate of 15 percent to 20 percent, with several billion yuan worth of virtual money traded in the market.

This rapid growth has worried China's policymakers, who fear that it could lead to inflation or money-laundering, resulting in a restriction enacted last year preventing the conversion of virtual currency to yuan.

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