The government may consider one single tax rate for online gaming as two different rates of 18% and 28% based on the distinction between so-called games of skill and games of chance are prone to misuse and litigation on account of the overlap between the two categories, two people aware of the thinking in government circles said.
A final decision on this matter will be taken by the GST Council, the apex decision-making body on matters of the indirect tax, they said on condition of anonymity. The council, a federal body, is chaired by the Union finance minister and has representations of state finance ministers.
The GST Council on May 24 constituted a group of ministers (GoM) to address issues related to the online gaming sector for taxation purposes. Initially, it was a seven-member ministerial panel under the chairmanship of Gujarat. Later, on June 11, the finance minister of Telangana was added in the group as the eighth member.
“The GoM is expected to submit its report to the council next month. The council may discuss all issues related to online gaming and take a considered view,” one of the people said. The GoM is to ascertain whether GST should be applicable only on the amount retained by the platform or also levied on the prize money.
The second person said it is often difficult to ascertain whether a game is purely one of skill or chance. “For example, rummy is a game of skill, but distribution of cards to players is nothing but chance. Secondly, unlike physical casinos, where the age of a player can be easily verified, in online gaming platforms, there is no effective way to check entry of kids as young as 13, which could be detrimental for the society. Hence, online gaming should be treated like lottery, a sin product, and attract the highest rate of 28%.”
“There is no objectively definable test or regulatory guideline or administrative forum to assess and determine if a game will be characterised as a game of skill or game of chance,” said a Niti Aayog discussion paper, quoting a report of the Sports Law and Policy Centre, a Bengaluru-based think tank focussing on sports law and policy.
Like lotteries, a single tax rate on online gaming is desirable to avoid litigation, the two people said. The GST Council in December 2019 levied a uniform 28% GST on both state-run and state-authorised lotteries. Earlier, state-run lotteries attracted 12% GST, while the levy on state-authorised lotteries was 28%. The lottery industry had been demanding a uniform GST rate of 12%.
“The higher rate of 28% tax on this entertainment space will certainly be subject to judicial review as these are games of skills and not of chance,” said Abhishek A Rastogi, partner at law firm Khaitan & Co. “The equally bigger issue is the valuation of service – whether tax is applicable on the aggregate value of contribution of each player, or on the margin or revenue of the online platform.”
“The Council can always amend the legislation to avoid multiple interpretations and judicial reviews,” the second person said. Rastogi, however, said the government needs to take a “pragmatic approach,” else players will have no choice but “to participate on foreign online platforms,” which will be detrimental to all stakeholders.
All India Gaming Federation (AIGF) CEO Roland Landers said the association has recommended that the government continue with the current GSt at 18%. Citing four precedents by the Supreme Court, he claimed online games are based on skill and should not be imputed with games of chance.
AIGF’s members are leading online game operators such as MPL, Paytm First Games, Gameskraft Group, Baazi Games and Adda 52.
“Various high courts have unambiguously held various online games like Online Rummy, Fantasy Sports (eg. Dream 11) etc., as games of skill and distinguished them from games of chance,” said Bipin Sapra, partner, tax and regulatory services, indirect tax at consultancy firm EY. “The online gaming platform is akin to any other e-commerce platform and connects various players who play the game. The fee charged by the platform is in lieu of the service provided and is the only taxable value.”
Arguing for an 18% GST, Landers said, “This is in line with global best practices where tax rates have been seen to range from 6% to 21%… If rates are increased beyond this threshold, there is a tendency for both operators and players to resort to black market operations, even within the Indian online gaming community.”
On the distinction between games of chance and games of skill, AIGF president, policy and planning, Sutanu Behuria said: “Games of skill require players to invest a lot of time and effort in training and honing their skills like any commonly played sport. Herein, games of skill are differentiated when skill clearly outweighs chance with respect to the outcome of the game.”
As per the gaming acts of various states, given that gaming is a state-run subject, games such as Rummy, Poker, Bridge, Fantasy Sports and E-sports are considered games of skill, he said. Behuria is a former bureaucrat.