Harvard Scholar Urges Immediate Taxation of Metaverse

A Harvard University scholar contends that the government should promptly impose taxes on income earned in the Metaverse, potentially benefiting government revenue.

Christine Kim declares that not taxing the Metaverse will lead to the formation of a “a tax haven.”

Metaverse Taxation Offers Unique Opportunity For Governments

A recently published research paper by Kim emphasizes that governments should instantly impose taxes on Metaverse income, surpassing other income sources. However, Metaverse income is frequently received in cryptocurrency, intensifying the ongoing taxation debate.

The Metaverse is a significant and rapidly growing economy. Recent data indicates that spending in the Metaverse has surpassed $120 billion. Further research predicts it will reach a global market value of $800 billion by 2024.

Kim argues that the instant payments individuals earn in the Metaverse, whether through real estate transactions, gaming, or event organization, can provide advantages in terms of boosting a country’s revenue liquidity.

“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 notes, expressing that Metaverse offers governments the opportunity 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.”

Kim points out that the United States government mainly relies on taxation for its annual revenue. According to the US Department of Treasury, the US collected $4.90 trillion in tax revenue, mainly from individual income taxes. Kim further argues that income earned in the Metaverse should be subject to the Haig-Simons income theory. This theory means that all income, regardless of its source, should be under tax jurisdiction:

“Gains or increases in wealth over a particular period regardless of whether spent on consumption or saved.”

To learn more about crypto tax, read BeInCrypto’s guide: The Ultimate US Crypto Tax Guide for 2023

On March 21, the US Internal Revenue Service (IRS) asked the public for input on how to tax non-fungible tokens (NFTs). They specifically sought to determine whether NFTs should be categorized as “collectibles.” This would potentially subject long-term investors to a higher tax rate of 28%, compared to the standard 20%.

The consultation period finished in June, however there has been no further developments on the matter.

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