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]
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:
- Compensation for services, in whatever form paid, including but not limited to fees, salaries, wages, commissions and similar items;
- Gross income derived from the conduct of trade or business or the exercise of profession;
- Gains derived from dealings in property;
- Interest;
- Rents;
- Royalties;
- Dividends;
- Annuities;
- Prizes and winnings;
- Pensions; and
- 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.
