Digital money gifts may become taxable in China

Digital money gifts may become taxable in China
The sending of digital red envelopes became hugely popular during this year's Spring Festival in February. They allow users to transfer "gift" money to each other on applications developed by WeChat, Alipay (above) or Sina Weibo, via online payment methods.
PHOTO: AFP

Tax authorities are likely to introduce new regulations on taxing individuals receiving digital red envelopes from corporations, an unnamed official source confirmed on Tuesday.

A leaked version of a document, circulated internally within the State Administration of Taxation, dated July 28, outlining the plans, was posted on the Internet on Monday.

Not officially released yet but only sent to regional tax bureaus, the source confirmed its existence but said no schedule has yet been finalized on when the document might be released to the public.

The source said that officials have found it hard to "identify and differentiate the various purposes behind dispatching digital red envelopes".

The sending of digital red envelopes became hugely popular during this year's Spring Festival in February. They allow users to transfer "gift" money to each other on applications developed by WeChat, Alipay or Sina Weibo, via online payment methods.

According to Tencent Holdings Ltd, which owns WeChat, 3.27 billion red envelopes were sent online by users between Feb 18 and 23. Due to its convenience, the money transfer method became popular.

Tax experts have suggested that if individual receivers are to be taxed, it would be done under the rules governing "accidental gains", previously applied to lottery winners, under which awards of more than 10,000 yuan (S$2,226) are taxed at 20 per cent.

The online version of the leaked SAT document followed that principle, but separated digital red envelopes handed out by corporations into "cash" or "coupons and vouchers" that can be only used to buy the firms' products or service.

In the "cash" scenario, the envelopes are likely to be considered an "accidental gain", the source said, leaving receivers subject to the 20 per cent individual income tax. In the case of "red envelopes" handed out by Didi Kuaidi, China's largest mobile-based car-booking company, for example, no tax would be payable if the funds were used to pay for a car booking.

Digital envelopes handed out among individuals, meanwhile, will not be subject to tax.

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