- Harvard scholar calls for prompt taxation of income earned in the Metaverse to prevent it from becoming a tax haven.
- The Metaverse’s digital activity tracking gives governments a once-in-a-lifetime opportunity to upgrade tax systems and boost revenue liquidity.
- The US government is urged to apply the Haig-Simons income theory to Metaverse income and recently proposed regulations to regulate digital assets and prevent tax avoidance.
According to a Harvard University scholar, the government should immediately apply taxes on income made in the Metaverse, potentially benefiting government revenue.
Metaverse Taxation Provides Governments With a Unique Opportunity
According to a recently published research paper by legal expert Christine Kim, governments should immediately impose taxes on Metaverse income, favoring it over other kinds of income. However, because Metaverse income is typically paid in bitcoin, the continuing taxation problem is exacerbated.
According to recent data, expenditure in the Metaverse has topped $120 billion. According to further study, it will have a global market value of $800 billion by 2024.
“The Metaverse’s ability to record all digital activity and track individual wealth can offer governments a unique opportunity to tax income immediately upon receipt,” Kim observes, adding that the Metaverse allows governments to “modernize the tax system.”
“Immediate taxation, such as a mark-to-market system, would be a more efficient and fairer approach so long as it could overcome intrinsic valuation and liquidity problems.”
Crypto Tax Developments in the United States
Kim notes that the United States government’s primary source of revenue is taxation. According to the US Department of Treasury, the United States collected $4.90 trillion in tax revenue, most of which came from individual income taxes.
She further posits that the Haig-Simons income theory should govern income earned in the Metaverse. According to this argument, all income, regardless of its source, should be subject to taxation:
“Wealth gains or increases over a specific period, regardless of whether spent on consumption or saved.”
The US Department of the Treasury and the Internal Revenue Service (IRS) announced regulations for selling and exchanging digital assets via brokers on August 25.
The regulations were enacted to crack down on people who evade paying taxes and subject brokers to greater reporting obligations comparable to those required for other securities and financial assets.
The draft rules will be available for public comment on October 30.
The IRS solicited public opinion on how to tax non-fungible tokens (NFTs) on March 21. They were primarily interested in determining if NFTs should be classified as “collectibles.” This might potentially subject long-term investors to a 28% tax rate rather than the usual 20%.
However, the comment time ended in June, and there have been no more announcements on the subject.