The government represented through an additional solicitor general (ASG) who did his best before losing the battle in Karnataka, had a brilliant game plan of issuing a clarification to the well-known and well-understood GST laws. The brilliant minds in the government, led by the ASG, however, had an epiphany! They figured out that those so-called "games of skill" were just clever disguises for good old-fashioned wagering. Who would have thought? They were always convinced that what is declared in various case laws to be the “games of skill” are again nothing but a masquerade to show wagering as “games of skill” — in other words just part of an elaborate charade. As per ASG N Venkataraman, and as is available in the public domain, the stakes are placed on uncertainties, hoping in anxiety that predictions turn true, to reap higher rewards than the amount at stake.
A new jurisprudence is laid down when he says that “horse race may be a game of skill but predicting which horse will win and staking money on that uncertain outcome, will only amount to betting and therefore illegal under relevant law”. It would be a mistake to get into the question of or trying to distinguish between “game of skill” and “game of chance” in the context of wagering, and it is nothing more than plain old illegal gambling! You just cracked the code there!
A perfect way out was found while he was pondering the age-old question “why did the lawyer go to art museum? Because he wanted to frame the case”. While the lawyer was busy appreciating fine arts at the museum, they had a moment of sheer brilliance. They realised that before appealing the High Court order in the Supreme Court, the position can be solidified with the proposal now made by the GST Council of imposing 28% on GGR + Price Pool or as coined by our finance minister to be on the “Full Face Value”. How delightful!
Forget about all that tiresome exercise of distinguishing between a game of skill or a game of chance. Who needs that? We will just slap a hefty tax on everything and call it a day! Forget about trying to understand the intricacies of the law or differentiating between legitimate skill-based activities and gambling. That's just too much work! Let's simplify it to the point where even a horse can understand it! And of course, the sheer brilliance gets brighter when during the press conference the finance minister coined the term, “Full Face Value”. It’s catchy, it’s trendy and it is sure to confuse everyone.
But wait, there is more! They also indirectly decided and sealed the fate of the industry by eliminating certain statutory positions and job openings by forming self-regulatory bodies, or SRBs. Who needs those pesky positions when you can simplify everything by declaring all skill-based games as involving “wagering”.
Doesn’t the above make the basic principle that no GST is required to be discharged on the contribution made by the players to the prize pool, which is in the form of “actionable claim”? Isn’t there a failure to appreciate that the same is a fund held by the operators’ interest for a brief period of time (i.e. from the time of contribution by the players prior to the commencement of a game till its completion) subsequent to which the prize pool is distributed to the winners. The price pool is not a consideration for any service provided by gaming companies, and they are not in the nature of supplies. The convoluted and ambiguous world of taxation is a never-ending source of amusement. It is truly remarkable how tax authorities manage to weave intricate webs of complexities around the simplest of concepts. The prize pool apparently is not a consideration for any services provided by online gaming companies. It’s just a magical pot of gold that mysteriously appears and disappears with no connection to the services rendered! Who needs services when you can just hold on to some money for a bit, right?
It's truly a joy to witness the systematic and well-planned approach of the revenue team in their quest to present an arguable case before the Supreme Court. And how fortunate we are to receive this enlightening clarification on July 11, 2023.
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A Never-Ending Game Of Tax Roulette
One can’t help but admire the government’s commitment to resolve past ambiguities and fortify the future even at the cost of some clarificatory legislations to be introduced in the monsoon session of Parliament. And let’s not forget the refusal to acknowledge or be construed nomen juris the Supreme Court rulings on “games of skill”. Who needs the highest court of land when you can just declare the entire industry to be engaged in betting, gambling, and lottery. Entry 6 of Schedule III of CGST must be overwhelmed and thrilled to have such a starring role!
Of course, we can’t ignore the fact that this declaration conveniently takes the concept of “actionable claim” out of the purview of supply of goods and services, especially when it comes to “skill-based games”. Who needs the skill anyway, if you are just putting everything under the umbrella of lottery and gambling.
And the sweet irony of it all! It seems the significance of the skill-based games declaration by the SRBs has been completely overshadowed by the unwavering determination to tax them as lottery, betting, or gambling. Who needs consistency and logical coherence when it comes to taxation? It needs a certain level of bureaucratic prowess to maintain such a contradiction. I mean, why bother applying a little bit of common sense to determine permissibility when, for the purpose of taxation, everything can simply be construed and declared as lottery, betting, or gambling? It's like playing a never-ending game of tax roulette, where the rules change depending on the whims of the authorities.
And let's not forget the IT Amendment Rules 2023 (gaming amendment), which prohibit wagering. It's absolutely hilarious how the very same activities that are prohibited under those rules are conveniently labelled as taxable entities in the realm of taxation. It's almost as if they are saying, "We forbid you to do this, but we'll tax you for doing it anyway."
Now, here is a piece of news that may interest you: according to a recent report, a whopping 60% of online gamers are apparently considering refraining from playing due to the increased tax rates. Who would have thought that taxing something heavily would discourage people from engaging in it? Is anyone surprised?
We can just offer bemusement at this circus of contradictions and unintended consequences, thanks to a convoluted web of rules that leave everyone scratching their heads. It's all just another day in the world of taxation. There will surely be more mind-boggling interpretations and breath-taking leaps of logic in future.
The author is an independent counsel and columnist.
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