China Taxes Virtual Assets, Virtual Goods Prices Rise

We all know China has a lot of people – 1.25 billion approximately. Of that 1.25 billion citizens, about 40 million play online games, and 80% of those have purchased virtual goods. According to 5173.com, this market has grown to about 9.36 billion yuan annually, which is about $1.37 billion in US currency. And that was just last year – a pretty impressive number by anyone’s standards.

Virtual World News recently posted that the Chinese government had imposed a 20% tax on any income generated through the trading of virtual currencies earlier this month. Apparently, this latest came about after the failed attempt two years ago to simply ban people from profiting off of virtual transactions. Of course, details on how this type of levy will be enforced are unclear.

For those that may not know, this all refers to the concept of virtual goods which are generally inexpensive, non-tangible items sold on the web. They range from avatars, virtual game items, animated gifs, game currency (i.e. gold), music themes, etc. They are often used by people to add personality, or an edge to the games and social networks they are a part of, and have skyrocketed in popularity over the past few years.

However, this new tax is affecting an enormous number of users. For example, any seller of a virtual currency (a subset of virtual goods) transaction must report to the Chinese tax agency and pay income taxes within seven days of the sale. However, based on the most recent post on Virtual World News, “officials are still unsure of what exactly should be taxed or how….”

Regardless, the platform providers seem to be loving the idea, as it discourages the sale of goods within their virtual worlds by third parties (such as reselling virtual currency in an MMO). The players, on the other hand, are not as pleased with the result (increased costs).

One of the major titles in which virtual currency is sold is Blizzard Entertainment’s World of Warcraft. There are a number of gold selling companies that do nothing but acquire large sums of gold and sell it to players for profit. How are the WoW markets being affected? In a recent article in the Shaighai Daily, one WoW player states, “The price of gold has surged recently and its difficult to purchase enough gold even if you have the money sometimes.”