According to a report by blockchain journalist Colin Wu, certain local tax authorities in China have started to apply a personal income tax of 20% on the investment gains of individual cryptocurrency investors and the revenues of numerous bitcoin miners.

Client information was supplied to the Chinese tax authorities through cryptocurrency exchanges such as Huobi. There have already been requests made to some large consumers to collect taxes.

Huobi advisor Justin Sun commented on the news, saying:

“China has taken a big step towards cryptocurrency regulation with the implementation of a tax on crypto transactions. This signals the country’s increasing embrace of cryptocurrencies.”

Tax regulations pertaining to cryptocurrency have been tightened in several jurisdictions. Due to the government’s blanket prohibition on cryptocurrency trading, tax reform in China has been met with considerable skepticism since the very act of taxing cryptocurrencies amounts to an acknowledgment of their legitimacy. It goes against the viewpoint of the central bank and other financial authorities.

Despite China’s ongoing crackdown on unlawful financial operations conducted via virtual currencies, it’s clear that bitcoin and other virtual currencies will have a hard time disappearing from global commerce any time soon.

While it is illegal to engage in the exchange of virtual currencies like Bitcoin in China, the possession of such currencies is not prohibited under the existing legal framework, and neither is the trade of such currencies illegal, albeit being characterized as an invalid civil act.

The most pressing issue of taxes will remain unsolved if cryptocurrency-related operations are not recognized as lawful economic activity. There were many similar arguments on in-game virtual tokens as far back as 2008. The necessity to tax cryptocurrencies has been cited as a possible impetus for China to regulate the sector.