Axie Infinity earnings taxable? Yes

Are players' earnings in Axie Infinity taxable? The answer is yes.Axie Infinity is an online game from Vietnamese company Sky Mavis which lets players earn cryptocurrencies in the game, which can then be exchanged for pesos. The game’s popularity reportedly exploded in recent months, with thousands of players in the Philippines attracted to its play-to-earn model.[1] According to Kane (2021), cited in a Wikipedia article, "Axie Infinity is a NFT-based online video game developed by Vietnamese studio Sky Mavis, which uses Ethereum-based cryptocurrency AXS and SLP. Currently it's the most expensive NFTs collection with more than $42 million in sales in June 2021."[2]

Profits generated from online games should be subject to income tax laws. As used in our income tax law, "income" refers to the flow of wealth.[3] The source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines.[4] However, for income to be taxable, there must be a gain realized or received by the taxpayer, which is not excluded by law or treaty from taxation.[5] 

Playing an online game is an activity. If it is done in the Philippines and income is derived from such activity, income tax laws will apply. This is not to say, however, that there are no limitations. Of course, there are limitations. For example, annual income of not more than two hundred fifty thousand pesos (Php250,000) is subject to 0% in one form of income tax. A complete discussion of other rates is available here.

Income Tax is a tax on a person's income, emoluments, profits arising from property, practice of profession, conduct of trade or business or on the pertinent items of gross income specified in the Tax Code of 1997 (Tax Code), as amended, less the deductions if any, authorized for such types of income, by the Tax Code, as amended, or other special laws. 

Income means all wealth which flows into the taxpayer other than as a mere return of capital. Taxable income means the pertinent items of gross income specified in the Tax Code as amended, less the deductions, if any, authorized for such types of income, by the Tax Code or other special laws. Gross income means all income derived from whatever source.

Gross income includes, but is not limited to the following:

  1. Compensation for services, in whatever form paid, including but not limited to fees, salaries, wages, commissions and similar items;
  2. Gross income derived from the conduct of trade or business or the exercise of profession;
  3. Gains derived from dealings in property;
  4. Interest;
  5. Rents;
  6. Royalties;
  7. Dividends;
  8. Annuities;
  9. Prizes and winnings;
  10. Pensions; and
  11. Partner's distributive share from the net income of the general professional partnerships.

[1] ABS-CBN News, 2021. Infinity players to register and pay taxes, https://news.abs-cbn.com/business/08/24/21/bir-tells-axie-infinity-players-to-pay-taxes.

[2] https://en.wikipedia.org/wiki/Axie_Infinity#cite_note-2.

[3] Madrigal and Paternol v. Rafferty and Concepcion, 38 Phil. 414 (1918).

[4] CIR v. Air India, G.R. No. 72443, January 29, 1988.

[5] G.R. No. 197590, November 24, 2014.

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