United States, try your luck on online games

A group of ministers set up to advise the Goods and Services Tax (GST) Council on the taxation of casinos, racetracks and online gambling is considering whether to increase the rate of tax at which they are liable and the evaluation of the company. The current 18% tax rate is based on the premise that online gambling involves skill and does not constitute gambling. And it imposes itself on the gross income of the games, essentially on the platform service provided than on the pooled money. Voices from the ministerial group would suggest that the recommendation will be for a higher GST rate, but it remains to be decided whether the tax will be imposed on the gross or net assessment.

India is one of the fastest growing markets for online games with deep software and hardware ties. Gaming has become the fastest growing segment among entertainment platforms. Augmented reality (AR) drives user engagement as social media shows signs of fatigue. Tech giants like Microsoft and Facebook’s Meta are making big bets on online gaming to propel the next phase of their growth and take on established players like Tencent and Sony.

The high courts of Karnataka, Kerala and Tamil Nadu struck down parts of laws banning online gambling on the grounds that they did not distinguish between games of chance and games of skill. The Supreme Court hears a case on skill-based online gambling that could pave the way for effective regulation, which the industry is seeking. The ministerial group may have seen the merit of increasing the GST bracket, after considering the Laffer curve on tax rates and revenue collection. But imposing the tax on the full face value of the bet could render gambling platforms unviable, pushing them beyond Indian jurisdiction and negating regulatory requirements such as know your customer. The panel considered some of these concerns. It studies the differentiation of activities involved in online games. This distinction may hold the key to proper tax treatment.

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