What is Axie Infinity and why is it being taxed?
Video games have been a growing trend ever since the 1970s and 1980s through arcade video games, gaming consoles, and home computer games. Today, it has reached a new level of popularity with the introduction of online play-to-earn games where people can earn while they play in their own homes.
An example of online play-to-earn games is Axie Infinity, where players breed, acquire, train, and battle “pets”, which they call Axies. The goal of the game is to collect small love potions (SLPs), which can then be used to produce additional Axies for usage in the game. These SLPs can be used to buy and sell cryptocurrencies on a cryptocurrency market. Top players are said to be making SLP1,500 (US$435/£317) per day from their Axies, even though the price of SLPs against the US dollar fluctuates daily. Since 2020, it has been steadily rising, so there is a case for holding on to them – or, conversely, selling while it is at an upward trend.
At the same time, Axies can be traded as NFTs (non-fungible tokens) in real life on sites like the Axie Marketplace. NFTs are digital collectibles stored on online ledgers known as blockchains. Other in-game assets, such as real estate, flowers, barrels, and lamps can also be traded for NFTs. All these items are purchased and sold using Ethereum, the second-largest cryptocurrency after Bitcoin.
The game has more than 350,000 daily active users as of July 2021 and most of this population is from the Philippines. Thus, with its rising growth in the country, the Department of Finance (DOF) has announced that earnings from the application would be subject to tax.
In the article of Inquirer PH, DOF’s undersecretary, Antonette Tionko, explains that if it is income earned from the currency, it should be taxed. It follows the principle of taxation, where if it is a flow of wealth, it is income. Further, the institution considers cryptocurrency as a taxable asset in the Philippines and its gains must be subject to income tax. However, its specific characterization is still something the Securities and Exchange Commission (SEC) and Bangko Sentral ng Pilipinas (BSP) must decide on.
Additionally, it was also pointed out that Axie Infinity is a non-resident foreign corporation that is not yet registered with the Bureau of Internal Revenues (BIR). This will cause a problem in taxing the said company, and it might even lead to an operation stop like what happened to Lyka in the past month.
Need help in filing taxes? Contact us at info@greenpointconsultancy.com
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