28 % GST on Online Gaming Sectors

Introduction

A Group of Ministers (GoM) gathered to investigate issues about the taxation of casinos, racetracks, and online gambling and reached a comprehensive agreement that a 28% GST would be levied on all three supplies. However, no agreement could be reached on the taxability of online games since Goa sought an 18% tax on platform fees.

Group of Ministers recommendations

The GoM on online gaming, horse racing, and casinos reached a broad agreement that a 28% GST should be applied on all three supplies, but no agreement was reached on the taxability of online games, with Goa proposing an 18% tax on platform fees, according to sources. The GST Council will make a final decision on the taxation rate, as well as whether tax is to be levied on gross gaming revenue (GGR), platform fees, or the entire face value of bets placed by participants of online gaming, horse racing, and casinos, on July 11.

Online gaming platforms are essentially technology or service providers that allow gamers to play games online. Although a player pays the entire amount to the platform (say, Rs 1000), the platform only keeps its platform fee or commission (say, Rs 100, i.e. gross gaming revenue (“GGR”)) for platform services, and the rest of the player money is held in a fiduciary capacity. The player can either play with the remaining money (in this case, Rs 900), win more, and cash out, or lose it to other players during the games.

The classification between a game of chance & a game of skills

The classification of online gaming activity for GST levy purposes is a critical element in the GST debate. The concept of skill vs chance games has been recognised by state laws as well as a slew of Supreme Court and various High Courts decisions. The Online Gaming Rules do not address the skill vs. chance aspect of game qualification. Instead, they require self-regulatory organisations to verify that the online real money game does not include wagering on any outcome. While the vocabulary of “gambling” or “betting” has changed from the draft version of the regulations, the bottom line is that a permitted online game is not considered “gambling” under the rules. More over the Minister of State, Meity, Mr Rajeev Chanderashekhar, has said that online gaming is a centre subject and gambling is a state subject, thus removing all or any ambiguity regarding the role of respective governments.

Goa’s Different points view on the GST

On the other hand, Goa proposed a 28% tax rate on casinos’ gross revenue but only an 18% tax on platform fees/service charges levied by online gambling operators. According to Goa, contributions to the prize pool can be considered supplies and will not be subject to GST.

Online games with success contingent on a specific outcome or betting or gambling would be subject to a 28% Goods and Services Tax (GST), whilst those requiring some skill might be taxed at a lower 18%. The game of chance and the game of skills are both different, and it is very hard to apply different levels of taxes on both. The task would be to distinguish between what should be considered a game of skill and what can be considered a game of chance. Online gaming currently gets an 18% GST. The tax is levied on gross gaming income, which is the amount of money paid to online gambling portals.

What is the controversy about GST on online gaming?

“Prize pool money is an actionable claim under the GST account, and if the game is deemed a game of skill, there will be no GST on it.” However, GST will be paid on the prize pool money if it is deemed a game of chance. The disagreement stems from the question of whether platform owners should pay taxes on the prize pool money they distribute, claiming they are only serving as trustees, transferring funds to the winners.

Projections for the gaming sector

According to projections, the Indian gaming sector will grow to a value of $5 billion by 2025. The Ministry of Electronics and Information Technology recently endorsed the boom in the gaming sector, which has been battling with regulatory issues, by naming it as the nodal ministry for regulating online gambling.

“Adopting an 18% GST tax rate provides numerous benefits to both the gaming industry and its stakeholders, fostering a thriving environment of sustainable growth and overall well-being.” While a rise in the GST tax rate to 28% may pose certain hurdles to the sector’s success, such as affecting companies’ cash flows and limiting investment in innovation and expansion, striking a balance that supports a strong and sustainable industry is critical.

Conclusion

Currently, the industry charges an 18% GST fee on gross revenue. The monetary repercussions of a GST rate increase to 28%, payable on the total player deposit amount (rather than GGR), will be enormous. To make the math work for business, the tax burden may need to be passed on to the players in some fashion. The profit margins of gaming platforms may suffer, diminishing their attractiveness among potential investors. This may also have an impact on foreign investment and innovation in the graphic and technological sectors.

References-

• https://www.millenniumpost.in/business/group-of-ministers-broadly-agrees-on-28-gst-goa-differs-524703
• https://www.a2ztaxcorp.com/indias-gom-on-online-gaming-casinos-horse-racing-broadly-agrees-on-28-gst-goa-has-a-different-view/#:~:text=Goa%20recommended%20a%2028%25%20tax,supplies%20not%20subject%20to%20GST.

Author- Himanshi Singh, Associate, Policy & Advocacy Team cyberPeace