An article posted by the Shanghai Municipal Tax Service explained taxes on digital currency transactions in China. It sparked speculations regarding a potential relief of the stringent China crypto ban regulations. The explainer was titled “Common Misunderstandings Regarding Personal Income Tax on Business Income and Categorised Income.”
According to a report by the South China Morning Post, the guide garnered immense attention after being published on WeChat on Sunday, January 7, 2024. The document referenced a 2008 statement by the State Taxation Administration (STA). Thereafter, some mainland crypto content creators suggested that taxing these transactions signals that Chinese authorities acknowledge the legitimacy of cryptocurrencies.
The Shanghai tax service later deleted the disputable crypto tax guide from its public WeChat account. The attention grabbed by the Shanghai tax service’s explainer reflects the hope within Chinese crypto circles for a review of the country’s strict crypto ban. The situation is even more critical considering Beijing’s push to encourage the digital yuan adoption.
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Furthermore, China’s Ministry of Industry and Information Technology recently announced plans to draft a national Web3 development plan. However, it did not explicitly mention cryptocurrencies. On the other hand, legal experts on the mainland clarified that the Shanghai tax service’s explainer doesn’t indicate any potential change in the China crypto ban policy.
Guo Zhihao, a Partner at Yingke in Beijing, busted the above-mentioned rumors in a WeChat post on Sunday. He noted that the questionable cryptocurrency tax guide is not an official policy document. Moreover, he added the STA statement which refers to talks about the virtual tokens used in video games.
Hence, the article highlighted that individuals obtaining virtual currencies via online video game players and generating revenue by selling them must pay income tax. Additionally, it detailed taxation in four scenarios, including loans from investee companies and online monetary gifts.
China’s Crackdown On Crypto
Unveiling the China crypto ban policy in 2017 was an extreme step on the country’s part. Thereafter, it has intensified its crackdown on all cryptocurrency-related activities over the years, citing financial stability risks. This stance persists, even as it supports Hong Kong’s aspirations to become a hub for virtual assets, including cryptocurrencies.
Chinese authorities recently cracked down on the use of cryptocurrencies in illegal foreign exchange trading. On December 27, 2023, the Supreme People’s Procuratorate and State Administration of Foreign Exchange asked forex regulators and prosecutors to keep a check on foreign exchange activities. The prime focus has been on cases where Tether (USDT) is used as an intermediary for trading yuan with other currencies.
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