Thanks to its explosive popularity, Axie Infinity is now in the crosshairs of the Philippine government. The incredibly popular (and lucrative) cryptogame has been a lifesaver for many people who have been affected by the pandemic, serving as an alternate (and for many, main) income streams. But as with anything income-related, the Department of Finance, specifically the Bureau of Internal Revenue (BIR) is looking to tax earnings from Axie Infinity, which has a lot of people crying foul. 

To make sense of what’s happening, we turned to Chairman and CEO of the Asian Consulting Group Mon Abrea. Mon is widely acknowledged as THE tax whiz in the Philippines, and shared his insight with us if earnings from Axie Infinity should be taxed, and what tools the BIR has in its arsenal to accomplish that goal. 

The first question that many people ask about Axie Infinity as it relates to the BIR is the one that has the most obvious answer: Should the government tax earnings from Axie Infinity? Obviously yes – any form of income is taxable under Philippine law, even games from Axie Infinity.

“Although the Bangko Sentral ng Pilipinas (BSP) hasn’t accepted cryptocurrency as a currency, it is a source/flow of income since it can be used to exchange or trade goods/services, or monetize to actual cash,” said Mon. 

“Unless you’re abroad, Sec. 32 of tax code covers all of us—- income from all sources within and outside the Philippine, cash or in-kind (crypto or virtual gifts, gems, etc),” he adds.

So, now that we’ve established that you DO have to pay taxes on earnings from Axie Infinity and similar games, how exactly will the BIR be able to track earnings? Crypto by its very nature is hard to track and trace (which some will argue is the point of it), so how will a government agency like the BIR track earnings from it? 

According to Mon, the BIR will have to do it the old-fashioned way, basing the tax needed to be paid by asset accumulation if “players refuse to register and pay voluntarily.” That means if you have suddenly a surge in income that allows you to acquire cars, houses and lots, and other obvious indicators of wealth, it’ll be easier for the BIR to investigate you. 

That also means that right now the BIR doesn’t have the tools to really home in on small-time players. More than likely a student playing Axie Infinity in their spare time to supplement their allowance, for example, will simply fly under the BIR’s radar VS big-time managers and whales who managed to acquire a significant amount of real property like houses and cars that can’t be explained by their ITR. 

But don’t think that the BIR doesn’t have the tools to pursue a case if they find a cause to. According to Mon: “the Commissioner has the power to secure information from any third party. In fact, we also signed an agreement for the exchange of Information even with the US, so e.g., the income of YouTubers can be requested from IRS since Google paid their taxes.”

One tool that the BIR has that can be leveraged against big-time Axie Infinity players is the Php 1 million bounties. The bounty, which is pursuant to Section 282 of the National Internal Revenue Code (NIRC) of 1997 and Revenue Regulations No. 16-2010., allows any concerned citizen to send information about tax evaders directly to the BIR. But even that Php 1 million bounty isn’t a surefire way to curb tax cheats, as the BIR’s methods for verifying reports as well as actually handing out bounties is a quagmire on its own, requiring (justly) that any people looking to collect the bounty to issue sworn statements, BIR certificate of registration, audited financial statements, income tax returns and other documents to prove the guilty party’s tax liabilities.

But if there’s one key takeaway from my conversation from Mon, it’s this: the Philippine government is sorely behind when it comes to digital taxation. As more games like Axie Infinity come out and crypto becomes even more ingrained in the mainstream, the deficiencies and issues with our antiquated tax code become even more glaringly obvious.