The Metaverse Tax: Who Really Pays to Keep the Metaverse Up and Running?

Who Really Pays to Keep the Metaverse Up and Running

The metaverse replicated the one thing no one wanted: taxes! 

On April 11, Meta announced its plans to allow creators to sell their own virtual assets on its virtual reality game platform Horizon Worlds. Meta’s CEO Mark Zuckerberg stated that this was an effort to expand the metaverse to the e-commerce realm. While this sounds great, the fact that Meta is planning to take a 47.5% cut on these sales leaves a sour taste in one’s mouth. 

The charge is a combination of Horizon Worlds’ fee (17.5%) and Meta’s hardware platform fee (30%) levied on sales made through Meta’s Quest store (where it sells games for its virtual headsets). Sales of the metaverse certainly make a pretty penny, with a plot of land selling for US$4.3 million on The Sandbox metaverse in 2021. Naturally, with such massive sales taking place on the metaverse, companies would want a cut of the profits. Let’s try to understand how profits are being distributed between companies and creators on the metaverse. 

Charging a cut on the metaverse

With Meta being the reason why the metaverse gained popularity in 2021, it only makes sense to start examining taxation with it. Meta’s VP of Horizon Vivek Sharma says that the company believes the rates being charged are pretty competitive when compared to the market. Other metaverse companies (as well as companies that sell digital assets, like NFTs) have in fact been charging cuts of their own for the sale of assets. For instance, Roblox charges a 30% fee from its users on the money they make from creating virtual assets on the platform and NFT platform OpenSea charges a 2.5% cut on each transaction. Compared to these platforms, Meta’s charges certainly feel steep and not quite as competitive as Sharma stated. 

What’s interesting is that, for the past couple of months, Meta had been actively calling out Apple for charging a 30% from developers on the app stores. Zuckerberg even went as far as to say that they were updating their subscription agreements to help creators earn more. After the announcement of how much Meta was going to charge creators, Apple has fired back about the hypocrisy of the creator-friendly approach Meta previously said it would take. 

This is not to say that charging taxes in the metaverse is a new concept. The first metaverse ever, Second Life, tried to introduce taxes a couple of years ago, only to be met with harsh backlash from its users. Finally, in March this year, Linden Labs (the company behind Second Life) announced that it would charge its users taxes on premium subscriptions, land fees and other recurring billings. 

But, what about the creators?

On the other side of the equation is the creator. Despite generating US$104 billion in 2021, creators themselves get a very small cut of the profits of the traditional creator economy (e.g. TikTok, YouTube and Instagram), with only 4% of creators making livable wages. The new models of income, like virtual assets, were meant to change this and make content production more economically favorable for creators. To a certain extent, they have been favorable to creators—musician Travis Scott has earned US$20 million in merchandise sales on Fortnite. 

But even big creators, like Travis Scott, would notice if platforms were taking away a massive chunk of their earnings. Of course, we cannot ignore that there would be certain governmental taxes, on top of the deductions from platforms, sooner or later when governmental regulations catch up to technological advancements. Some countries, like India, have already announced a 30% tax on virtual assets. If you add up all these taxes, what is the average creator really left with? 

Nobody likes being taxed, that’s for sure. There has been significant outrage on Twitter about Meta’s taxation scheme, with one user saying “You know I thought Zuckerberg had a better vision for the metaverse than ‘Second Life but with higher taxes than Denmark’”. Up until this point, many were looking at the metaverse as a space for growth for various businesses and artists. However, Meta’s taxation plan has certainly cast doubt on to what extent that claim or belief is true. On the bright side, at least, the discussion on taxes finally opens up a conversation on how profitable Meta and other metaverse companies would be and also how much the creators would actually make from the sale of their works. 

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Header image courtesy of Unsplash

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