China to Impose 20 Percent Tax on Virtual Commerce

By November 05, 2008

China is enforcing a 20 percent tax on virtual goods, a $1.45 billion (10 billion yuan) a year market.  The measure "specifically takes aim at those who buy virtual currency from gamers and surfers and sell it to others at a mark-up". The tax specifically targets “gold farmers”, who collect in-game items in order to sell them at a mark-up. Characters, spells, and items can be sold for thousands of dollars on eBay and other auction sites. A study by Manchester University this year estimates that gold farming is a $500 million industry. 80 percent of that industry, 400,000 people, is based in China. Legislation of the virtual world is becoming increasingly complex.

In Japan last month, a woman in Japan was arrested for murdering her virtual husband’s avatar. She was charged with hacking, as she used his password to access his acount. She could face up to five years in prison of a $5,000 fine. A Tokyo teenager was charged with stealing $360,000 in virtual currency, and last month the Netherlands were charged with the theft of virtual goods, in which the Dutch court ruled that virtual goods were real goods.

Second Life and China’s popular IM service Tencent QQ convert virtual currency into physical-world cash.

Beginning in 2006, Chinese economic leaders have announced concerns that virtual commerce could affect the value of the yaun. Last year, China’s government tried to ban the use of virtual money to pay for real-world goods, but the measure was largely ignored.

China’s virtual world economy is growing between 15 and 20 percent a year; there are at least ten types of virtual currency in China.

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