Last year China banned the sale of virtual currency in an effort to
shut down "gold farmers" — businesses that hire young Chinese to play
video games all day and sell the proceeds (in the form of game currency
or magic items) on eBay(EBAY) or online
The Chinese government did nothing to enforce its own ban, so it
remains to be seen whether Beijing follows up with its latest edict:
Gamers who sell virtual goods for a profit will be taxed at 20% of the
proceeds, the same rate applied to profits on real estate or other
transactions.In December 2005 the New York Times estimated 100,000 Chinese were employed full-time
in the gold farming industry, and consulting group iResearch says the
virtual currency trade is a $1.4 billion dollar industry growing at 15
to 20% a year.
Here is the story and thanks to Alex Rosen for the pointer.
Tyler:
China has recently taxed exports also in the attempt to make more food available in the country.
http://ewot.typepad.com/the_economic_way_of_think/2008/11/farm-aid-update.html
Question- How the F could the gov’t determine profit on a virtual good.
Accurately determining the cost of acquiring a particular item would be impossible. Those who are fortunate enough to pick up an uber-rare item in short time would be doubly so, as the item’s cost metric would be higher than realized, reducing the taxable profit.
Furthermore, I’d imagine all cost metrics would assume one market wage rate. If they didn’t, it would be all to easy to launder. A wonderful thing for those higher-level players, who usually have or can easily collect enough gold to generate easy fortunes by cornering raw material markets.
I’m stopping.
I have to say the number of gold farmers (100,000) is vastly exaggerated. Most Chinese game players play games for fun, not for money. See this interview with UCI professor Nardi, who has done actual research on the topic in the field:
http://sciencedude.freedomblogging.com/2008/09/11/uci-tackles-world-of-warcraft-mystery/
There were discussions in virtual worlds conferences, back in the day when Second Life was newsworthy of mass media attentions, about which country would introduce taxes on transactions with virtual currencies first.
China was often cited. Internet as a tool for entertainment and online games is much bigger phenomenon in China than in the West.
Some “virtual” transactions in Second Life are already taxed, namely VAT applies to European residents when they purchased Linden Lab’s services (i.e. mostly virtual land fees). The lion share of these purchases are made with the proceeding of selling virtual currencies for real ones.
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