Earlier in the week, we got word that the BIR and the SEC were both finally taking an interest in Axie Infinity. The Philippine government is hurting for cash right now, and they’re setting their sights on content creators and play-to-earn gamers as potential revenue sources. Finance Undersecretary Antonette Tionko indicated that the BIR was planning to create a registration system for foreign companies like Axie Infinity in order to collect taxes from their activities. Tionko also reminded Axie players that they are “mandated to report as income and pay the taxes for whatever they generate from cryptocurrency platforms.” Lastly, she posed the question of whether Axie Infinity was a security or a currency, the answer to which would help them define the rules for how it would be regulated. The following day, the SEC jumped on the bandwagon to warn the public that SkyMavis was not registered with them, and that they are currently “investigating regulatory touchpoints.”
Let’s get this part out of the way first: If you are generating income as a resident of the Philippines, you should probably pay your taxes. (It’s not as bad as you think: if you’re earning less than 250,000 pesos per year, your income tax liability would be 0%.) Now, precisely how you register and file is going to be a challenge, but let’s go through the various parts of Tionko’s statement together first, and then talk about some possible solutions.
Re: Setting up a tax register for foreign firms. Although it would be easy to reach out to SkyMavis and ask them for their corporate documents, trying to collect taxes “from their activities” is going to be a very strange experience for the BIR. Firstly, SkyMavis doesn’t actually earn anything from the players. Their “Community Treasury” is growing in size because the Axie marketplace charges a 4% commission whenever an axie is exchanged between a buyer and a seller. And as its name implies, that Treasury doesn’t even fully belong to SkyMavis. It belongs to the community, because its balances will be used to reward stakeholders and players when community staking is launched later in the year. Importantly, it also holds all of its assets in two coins with floating values, ETH and AXS, and neither of them will ever be converted into a recognizable fiat currency by SkyMavis. The questions the BIR would have to ask would include: (a) how much of the Treasury balances are attributable to the activities of Philippine residents, and (b) how do we calculate the value of said balance, if it’s never converted to fiat? The answer to (a) is not straightforward, since you don’t have to identify yourself when you buy an axie in the marketplace. The answer to (b) is at least debatable.
Re: Players need to report whatever income they generate from cryptocurrency platforms. This is the one most people were most expecting, and is no different from the way the BIR handles taxes for freelancers, or even just people who work in microtask platforms like Fiverr or TaskRabbit. Basically, they expect you to self-report how much you earn. In the case of Axie Infinity players, you calculate your earnings based on the peso equivalent at the time you converted your SLP to peso. Yesterday, a BIR spokesperson was already on PTV urging Axie players to register with them to avoid late payment penalties … and even threatened jailtime for wrongdoers! I had hoped that the regulators would show a little bit more empathy towards the community, given that most of the local axie players have never made an income before and don’t know the first thing about tax registration.
Re: Is Axie Infinity a Security or a Currency? The SEC confusingly reminded the public yesterday that Axie Infinity and SkyMavis have not registered with them and do not have a license to sell securities here. This is ok, because axies aren’t securities. That would be like requiring Blizzard Entertainment to register with the SEC because people buy Hearthstone card packs from them. More importantly, SkyMavis is not even in the business of selling axies. Only the players are. Unfortunately, government agencies are still a long way away from wrapping their head around these new decentralized concepts, and their pronouncements on these matters reveal how little they actually understand.
There’s going to be a lot more to discuss about these issues over the next few weeks, and I suspect that it’ll be Cryptoday’s prime focus for at least the next few newsletters. Our friends at Taxumo will be hosting a free online event later today at 2pm to talk about cryptocurrency taxation, and I totally recommend that you guys catch it if you can. I’ll be doing a series of interviews and shows all of this week and next week, and I’m sure this will be a popular topic there as well.
Catch you all on Friday, cryptofam!