Asset prices in the Chinese cyber world rose in the past week and the debate on the tax collection of virtual property trade continued to be hot, even as the real world was suffering an economic slowdown.

It started with a statement from the country's taxation bureau, which said at the end of last month that it planned to collect taxes on "virtual property" online transactions. The State Administration of Taxation's Beijing branch then announced the details of the tax-collection rule.

After individuals gain income through virtual currency transactions, they should go to the tax department to pay personal income tax within seven days of the day after the transactions. For those who can provide proof of the original value of the property, they will be charged 20 percent of their profits and for those who cannot, they will be charged at three percent of the total value of the transaction.

At present, more than 40 million people play online games in China and 80 percent of them have bought virtual items online, from prepaid game cards containing time for play, game currency and weapons or arms in the cyber world.

In 2007, the online transaction volume of such "assets" reached 9.36 billion yuan (US$1.37 billion) and the figure is expected to hit 11.12 billion yuan, according to 5173.com, one of China's major virtual asset transaction platforms.

"The price of gold [in games] has surged recently and it's difficult to purchase enough gold even if you have money sometimes," said Xiao Yan, a player of the World of WarCraft video game, who has invested 1,500 yuan on gold.

With this in-game "gold," users can buy items or materials necessary for playing the game.

Too sensitive

Another popular cyber currency, Q Bi, issued by China's biggest instant message service provider Tencent (QQ), allows users to customize their virtual images and gain some superiority in games.

Sellers will transfer tax costs to players if the regulator starts tax collection, players complain.

Trade volume is at normal levels but the average price rose slightly in the past two weeks, said an official at a third-party trade platform, who declined to be identified. The official said it was "too sensitive to comment on the issue now."

"Even if we pay the cost of the new tax, we won't get any additional services from game operators or authorities, such as account protection and deal guarantees," said Alan Wang, whose game account has been stolen by computer worms six times in the past three years.

Wang's opinion was echoed by Gu Jia, who was cheated in a virtual item deal last month and found it difficult to get help from the operator.

Kao Xiaowei, senior official of the General Administration of Press and Publication, said caution should be exercised over adopting the policy, which would have a wide influence.

Game operators, however, support it.

"In principle, we don't encourage players to buy items off-line," said Tao Junfeng of The9, the operator of World of WarCraft in China.

Tencent also supported the policy as it would wipe out unauthorized resellers. "The policy is positive as it represented the country's recognition of the virtual item trade for the first time," said the unidentified official.

But there's controversy over how to define a "virtual asset" and how to collect the tax. Most government bureaus and researchers insist all online deals related to currency in the real world should be taxed, as the government has to regulate this "gray zone."

However, trade platform operators think that taxable assets should only cover official game currency sold in the real world, and should not include virtual items or gold sales.

"It's almost impossible to define what's the profit in such deals and many deals don't leave any records to track," said Xiao Yun, who employs six or seven people playing games every day and sells game currency obtained online.

(Shanghai Daily November 14, 2008)