New Delhi: Online gaming may soon face a Goods and Services Tax (GST) of 28 percent, as decided upon by the Group of Ministers (GoM), chaired by Meghalaya Chief Minister Conrad Sangma. The committee has reportedly made a unanimous call to impose 28 percent GST on casinos, race courses, and online gaming services. At present, online gaming is clubbed together with casino and horse racing in the country, and hence faces a GST of 18 percent. This is imposed on the service fee a company charges for its online gaming services, and not on the winning amount. For now, it remains to be seen whether the 28 percent charge will be levied on the service fee or the winning amount.
For those unaware, the GoM is a body of eight ministers, led by Sangma. GoM decisions are generally not challenged by the GST Council, which is headed by Sitharaman.
GST on online gaming: What is the current tax structure?
At present, online gaming firms pay a GST of 18 percent on gross gaming revenue (GGR). To put it simply, GGR is the commission charged by a company from players for its services offered.
GST on online gaming: What has the GoM decided?
On May 18, Sangma took to Twitter to confirm that the GoM has indeed reached a consensus on casinos, race courses, and online gaming. While he didn’t reveal much else about the tax structure, Sangma said the report of GoM’s submissions will be handed over to Finance Minister Nirmala Sitharaman in “a day or two” and that the “matter will be presented in the next” GST Council meeting.
While there’s no official confirmation on the tax structure, several media reports have claimed that a 28 percent tax has been proposed by the GoM.
One of the panel members reportedly confirmed that the tax will be levied on the “face value” or “bet amount” and not on the total transaction value.
It should be noted that once the official report is filed, details on the actual tax structure will be clearer.
However, as mentioned earlier, there's still not much clarity on the tax structure. Technology and gaming lawyer Jay Sayta tweeted, "It is still unclear whether GoM has decided to impose tax on entry fee/bet value of casinos of online gaming and horse racing. If they decide to do so for skill-based games like poker, rummy, fantasy cricket, etc., it will require several amendments."
Sayta added, "Centre and all states will have to amend Schedule III of CGST & SGST Acts to exempt stake value of games of skill from meaning of actionable claims and besides will require amendments to Rule 31A of CGST & SGST Rules as well. This will result in prolonged litigation. It is possible that some states like Goa which depend on tourism revenue may not issue corresponding amendments to SGST Act or Rules or give some relaxations to companies. Further, centre will have to issue ordinance and amend Rules, process may take time after GST Council approval."
GST on online gaming: Is a 28 percent tax unfair for Indian companies?
As per law and public policy professional Shivani Jha, a 28 percent GST in online gaming “seems aggressive.” She said that the global standards for taxation for online gaming “is under 15 percent.”
“This not only puts an economic burden on gaming companies and gamers but in a way encourages offshore participation of companies that aren’t even regulated in India,” Jha told ABP Live. Jha is also the director of the eSports Players Welfare Association (ePWA).
The 28 percent GST, if the proposal indeed goes through, will particularly make things difficult for gaming platforms. This will lead to platform owners paying a considerable amount more than what they are paying currently. The GST will only be higher for bigger operators, and smaller companies may find this unsustainable.
As per Rishabh Bhansali, co-founder of fantasy gaming platform FanClash, the GST proposal "will be massively detrimental to the Indian Gaming Industry, which is expected to grow to the size of $5 billion by 2026." He told ABP Live, "Levy of tax at 28 percent will cause major cash flow disruptions across the industry."
GST on online gaming: Will it drive away gamers from Indian platforms?
Jha says it's unfair for people who are playing skill-based online games to be clubbed along with someone who buys a lottery ticket, or bets on race courses, as they are purely based on luck. “Taxing online skill games the same way as taxing lottery or horse racing doesn’t seem to be an encouraging move for a tech-driven industry,” Jha said.
She believes that if the proposal actually goes through, Indian gamers could eventually move away to foreign platforms, which won’t bode well for Indian firms. Companies may end up increasing their fees to sustain their business, which could be another factor that drives away gamers.
For now, Jha advises that one should wait for the proposal to actually go through and a report on the final tax structure is revealed to the public.
Bhansali believes that the move may eventually lead to large dips in tax revenue. "The proposed valuation rules to tax the entire entry fee, instead of the platform fee earned by skill game operators, will impact their business viability. This will in turn affect the gamers, the industry, and its employees, and eventually the taxman, who will, in the long term see large dips in tax revenue," he said.
Speaking on the 28 percent GST on eSports as a whole, Yash Pariani, Founder and CEO of House of Gaming, told ABP Live, "The betting and gambling tax legislation will have little impact on eSports because game makers have tight rules prohibiting not only any such practices for the event but also having any gambling or betting organisation from sponsoring any competitive eSports tournament." House of Gaming looks to develop eSports in India through its verticals which include the popular competitive platform, Indian Gaming League (IGL).