Harvard academic urges immediate taxation of metaverse income

A Harvard scholar is urging authorities to implement a tax on Metaverse earnings in order to boost government revenue streams.
In her recent research paper titled “Taxing the Metaverse,” Harvard legal scholar and Yeshiva University law professor Christine Kim has made a compelling case for applying traditional tax principles to the rapidly growing metaverse.
Kim explores how the metaverse has the potential to generate wealth within its ecosystem, arguing that it should be subject to existing tax regulations.
She points out that economic activities within the metaverse align with established definitions of income, such as the Haig-Simons and Glenshaw Glass principles, and warns that failing to tax these earnings could turn the metaverse into a tax haven.
Recent data shows a significant increase in metaverse spending, surpassing $120 billion already. Projections suggest that this figure could reach an astounding $800 billion by 2024.
Kim highlights the digital nature of the metaverse, which allows for detailed tracking of activities and wealth, enabling governments to tax income as soon as it is earned. This, she argues, could transform the current US tax framework.
The paper also discusses potential changes to current tax methods. Kim suggests that metaverse users in the US could be taxed on gains immediately, including unrealized profits and income kept within the metaverse.
However, the issue of enforcement is crucial. Kim outlines two possible strategies for enforcing tax rules in the metaverse. The first involves platforms withholding taxes on behalf of users, while the second, less favorable option, requires platforms to provide tax details to users who must then fulfill their tax obligations independently.
Kim believes that taxing the metaverse could open up new opportunities for policymakers, even those less interested in web3 and metaverse technologies.
In other news, the US Department of the Treasury and the IRS have introduced proposed regulations on the sale and exchange of digital assets by brokers to combat tax evasion. Brokers would have to adhere to stricter reporting requirements similar to those for other securities and financial investments. The public can comment on these proposals until Oct. 30.
Earlier this year, the IRS sought public feedback on the taxation of non-fungible tokens (NFTs) and considered categorizing them as “collectibles,” potentially subjecting long-term investors to a higher tax rate of 28% instead of the usual 20%. However, the consultation ended in June without any updates.
India is also investigating betting platforms for crypto tax evasion.