“Tax games of skill differently than games of chance”

Mumbai: IndiaTech, an industry association representing mainstream internet startups, has urged the government to tax games of skill differently from games of chance.

In a letter to Finance Minister Nirmala Sitharaman ahead of Union Budget 2022-23, IndiaTech proposed that the Goods and Services Tax be levied only on the amount received by the platform for providing its services and not on the prize pool kept for distribution among the players.

ET reviewed parts of the letter.

IndiaTech, a consortium whose members include online gaming unicorns such as Dream11 and Mobile Premier League, has asked the finance minister to ensure that Rule 31A of the 2017 CGST Rules – which applies to lottery, betting, games of chance and horse racing – will not apply to games of skill. Under Rule 31A, the full value of the transaction, which includes the amount of the gain, is taxed.

The TPS Council, the supreme decision-making body on indirect taxation, formed a group of ministers last year to deal with issues related to the online gambling industry for tax purposes. The GoM has been tasked with making recommendations on the rate of GST for online gambling as well as determining whether GST is applicable on the total value of the transaction, which includes the prize money, or net commissions (revenues) that go to game companies.

According to two people in the know, there was an opinion within the group to recommend an overall GST of 28% and an online club for games of chance and those of skill. Most game companies currently pay 18% GST as a platform fee. IndiaTech in its letter recommended that this should become a standard for platforms offering skill games. The GoM has not yet submitted its recommendations to the GST Council.

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IndiaTech urged the government to distinguish between the two categories and proposed that the online gambling industry should only pay GST on net commissions (income).

For example, four people log on to a gambling site and play Ludo by depositing Rs 100 each. One of the four wins the game and receives Rs 380 as the winning amount. The balance – Rs 20 – is the gaming company‘s commission. Currently, the question is whether GST is payable on Rs 20 or Rs 400.

“The coercive measures taken by the authorities have been addressed by the High Court of Punjab and Haryana to deal with such actions until the final decision of the group of ministers formed for the gambling industry is rendered public,” said Abhishek Rastogi, a partner at Khaitan & Co, which has argued for online gambling platforms in high courts. “While the industry awaits the decision, the budget is expected to provide the much needed sigh of relief for online gaming platforms.”

The government could make a clarification and ask gaming companies to pay 28% GST. In the past, gaming companies have approached the government and requested that the GST be levied on their margins and not on total transactions.

The industry body said in the letter that higher tax rates will negatively impact its growth. “Major global regulated markets, including the UK, most EU countries and Nevada, New Jersey in the US, impose a tax on gross gaming revenue at the rate of 15% to 20 %”, did he declare.

India’s online gambling industry has exploded in the wake of the Covid-19 pandemic and attracted significant capital from investors. As of December, there were more than 900 gaming startups in India, according to startup industry tracker Tracxn.

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