The latest discussions in the GST Council have caused negative feedback from the online gaming community in India. The buzz erupted due to the Group of Ministers’ (GoM) attempts to push their recommendations and higher taxes on online gaming. The motivation for such a decision many see as a way to increase the tax revenue through unethical means. Ultimately, this would trigger certain steps and do irreparable damage to the gaming sector. First, the taxation on gross revenue with 10% higher rates would lead to higher commission charges by gaming companies. The next thing that would occur is players in India switching their attention to outside operators. Or side-stepping the GST system with illegal gaming.
When the proposal for new taxation on online gaming became public, online gaming companies immediately spoke about how the new policy could affect the gaming sector. They pointed out how it’s not fair to make no distinction between online gaming and online gambling. The key difference is that online gaming encompasses games which need a certain level of skills. Organizations such as the Internet and Mobile Association of India have appealed to the government on this issue. They wanted the lawmakers to distinguish between games of skill and games of chance offered by online gambling platforms. And also keep the tax rates for online gaming the same. Technically speaking, it could happen, but the speculations say otherwise.
Currently, online gambling is booming in India. This is due to the accessible information from gambling resources online and the market which is continually evolving. How the decision by the GST Council will impact the made progress has yet to be seen.
While still young, the gaming sector in India has contributed impressive revenue so far. The projections for the future are even more promising, but all that depends on the GST Council, and their decision. If the original recommendations get confirmed, the experts believe that the sector will regress. As the GST Council required a re-examination from GoM, the proposal should be finalized in August.
Certain parts of GoM’s proposal shouldn’t come as a surprise at all. Especially considering all the changes that occurred since COVID-19 first broke out. The economy in India suffered greatly, and it will take time to bounce back completely. Expecting that the gaming sector should be immune to the change process doesn’t seem viable or fair. But, while making decisions and adjustments on the GST rates and policy, some far-ahead thinking is necessary. For example, to collect the right amount of taxes which won’t do irreversible damage.
Current recommendations by GoM say that:
- Online gaming needs to be taxed at full value consideration, and this includes players’ entry fee
- Horse racing tax rate goes on the full value of pooled bets
- Casinos are taxed on the full amount of coins/chips bought by players
- For each bet or the winnings from previous rounds the GST won’t be applied
- A unique 28% tax rate on all online gaming, horse racing and casinos
The best international tax policies on online gaming agree with the present 18% tax rate. Raising it to 28% isn’t that surprising with the state of the economy right now. The problem lies in the attempt to apply the tax to a full value consideration that includes players’ entry fees. Taxes on gross revenue is a big problem here when you take into account the online gaming contest format. Platforms take around 5-20% commission of the prize pool, and the rest goes to the winner. Even if the tax rate jumps to 28%, the right course would be to install it on a net value. In that case, further development of the sector would still be on the right track. Many experts believe that the other option would have a huge negative impact and result in many protracted court battles.
