JOURNEY OF GST ON ONLINE GAMING & E-SPORTS IN INDIA
After bursting into the scene only a few years ago, 50% of internet users in India are now gamers, while one in three is spending funds for the same. From playing a rummy game to building a fantasy cricket team, Indian gamers are estimated to have tripled since 2017.
The meteoric growth journey of online gaming in India is driven by several key factors that continue to provide it the tailwind. The generational knowledge of rummy rules and the fascination for cricket and football pushes real-money gaming to higher highs, while a timely telecommunication revolution nurtured the industry with an optimal ecosystem. After a prolonged understated presence in the gaming scene, India is a major force in the global market today.
With a world-class digital infrastructure, widespread smartphone usage, affordable internet access, and a youthful population numbering in the millions India has witnessed a brief yet accelerated evolution of online gaming in the last two decades, unlike the gradual growth of the industry globally. With widespread smartphone usage, affordable internet access, there is no surprise that 94% of Indian gamers prefer mobile gaming, with only 9% and 4% preferring PC and console games, respectively.
A recent report titled “Robust Fundamentals to Power Continued Growth” claims that India accounts for around 20% of mobile game downloads across the world, with 9.5 billion games downloads in 2023. By next year, the market value of the online games industry in India is expected to be ?231 billion. It is expected to grow at a CAGR of 20% per annum.
The gaming industry can expect to witness rapid technological advancements in the days to come. The evolution will continue as integrations around technologies/concepts like blockchain, cloud gaming, AR/VR experience, etc., unfold further. Exciting times await the Indian online gaming industry.
The Online Gaming Industry in India, is soaring out of its nascency stage at a lightning pace & has grown exponentially. However, the pace of the Government with respect to the GST taxability surrounding online games, still seems to be dawdling & fluctuating. GST Authorities are continuously trying to levy higher tax & thus, the debate circumscribing Online Game is still battling in the judicial forums to find a suitable consensus & reach ad idem with respect to its GST Taxability.
CURRENT TAX REGIME OF ONLINE GAMING & ONLINE CASINO:
First we need to understand the concept of “actionable claims” under GST.
As per Section 2(1) “actionable claim” shall have the same meaning as assigned to it in section 3 of the Transfer of Property Act’ 1882.
Section 3 of Transfer of Property Act 1882 defined “actionable claim” as a claim to any debt, other that debt secured by mortgage or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the civil court recognise as affording grounds for relief, weather such debt or beneficial interest be existent, accruing, conditional or contingent.
In simple words, actionable claim means a claim which can be enforced by a legal action or a suit. It is a claim for any amount receivable i.e debts or claim for benefit of any movable property not in possession, for which relief can be claimed in civil court. Such claim can be assigned or transferred. However presence of action to realize debt is necessary to constitute actionable claim. Eg: Unsecured Debts, Right to participate in draw by way of lottery, Right to recover insurance money, Claim for arrears of rent, Right to claim provident fund etc.
Taxability of actionable claims under GST:
Section 2(52) of the CGST Act’ 2017 includes the actionable claims under the definition of Goods. Para 6 of the Schedule III provides that Actionable Claims other than lottery, betting, gambling and race horse shall neither treated as supply of goods, nor treated as supply of services under GST.
Further, Rule 31A(2) and 31A(3) of the Central GST Rules’ 2017 provides mechanism for valuation of actionable claims lottery and betting/gambling/horse race respectively.
In simple words, actionable claims are not taxable under GST except for lottery, betting and gambling or horse race.
The current GST regime distinguishes between games of skill and games of chance. The former (games of skills) is taxed at 18%, while the latter (games of chance) is taxed at a higher rate of 28%. The 18% tax is currently only applicable to the platform’s service fee or the Gross Gaming Revenue (GGR) which is the difference between the amount wagered and the amount won. GGR thus refers to the fee charged by an online gaming platform for facilitating the participation of players in the game. However, the GST Council has proposed to impose this higher tax rate on the pot value.
Games of Skills vs Games of Chance:
First of all, we need to understand the difference between games of skills and games for chance. Understanding the distinction between games of skill and chance empowers players to make informed choices about the games they play and helps regulators establish fair and effective legal frameworks to protect consumers and maintain the integrity of the gaming industry.
|
GAMES OF SKILLS |
GAMES OF CHANCE |
|
Strategy & Decision Making: A game of skill relies on the player's knowledge, strategy, and proficiency to determine the outcome |
Randomness: A game of chance is primarily influenced by random or unpredictable factors, such as luck. |
|
Control: Games of skill typically involve strategic decision-making, practice, and player has control over the outcome, |
Control: Games of chance depend on randomness, uncertainty, and limited player control. |
|
Legal Implications: Games of skill may be exempt from certain gambling laws or subject to lighter restrictions compared to games of chance. |
Legal Implications: Games of chance are typically subject to stricter regulations and licensing requirements to ensure fairness, prevent fraud, and promote responsible gambling practices. |
|
Success in games of skill often comes with practice and experience. Players can improve their performance over time by refining their strategies and honing their skills. |
No such skills, practice is required in games of chance. Games of chance primarily rely on luck and player’s choice within the games does not significantly impact the outcome. |
|
Example: E-sports tournaments or fantasy sports leagues, chess, poker, scrabble, competitive video games |
Example: Slot machines, roulette, lottery, scratch cards, and most Casino games, Gambling, Betting, Horse Race. |
|
Considered as “actionable claims” under GST. Neither considered as supply of goods nor considered as supply of services. |
Considered as taxable supply under GST and hence entire amount pooled is taxable. |
|
GST @ 18% on the platform fee/convenience/administrative fee only. |
GST @ 28% on entire amount pooled by the players. |
“Betting” is a contractual agreement where parties agree to pay or deliver a sum of money or other item based on the occurrence or non-occurrence of an uncertain event. “Gambling” is described as engaging in games or gaming activities for money or other stakes, which not only involve chance but also the expectation of gaining something beyond the amount played. “Gambling,” in contrast, is a broad term encompassing various acts, games, or devices where individuals intentionally expose money or valuable items to the risk of loss by chance.
Some activities may blur the line between skill and chance, leading to legal debates and challenges. For example, certain variations of poker or fantasy sports may involve elements of both skill and chance. While games of skill primarily rely on the player's abilities, luck may still play a role to some extent. However, skilful play and strategic decision-making are the primary determinants of success.
The Hon'ble Supreme Court in the matter of Dr. K.R. Lakshmanan v. State of Tamil Nadu held the view that:
Hence, Predominance is a watershed test for distinguishing between a game of skill or chance. A game of chance is one in which the element of chance predominates over the element of skill. A game of skill is one in which the element of skill predominates over the element of chance.
How lottery, betting, gambling and race horse are valued and taxed in India?
Before the GST Council amendment:
Rule 31A(2) and 31A(3) of the Central GST Rules’ 2017 provides mechanism for valuation of actionable claims lottery and betting/gambling/horse race.
In case of Lottery, the deemed value of supply is the [(Face Value of ticket)*100/128 or price as notified in the official gazette by the organising state] whichever is higher.
Here’s how online gaming and E-sports are taxed in India..?
The GST council set up a panel of members in the last week of May’ 2021, which included ministers of different state governments, to examine GST payable in the online gaming industry.
The discussion was directed in two broad areas:
The issue related to online gaming came to the limelight in the month of November 2021 by the various actions of the DGGI, when a GST intelligence unit issued a show-cause notice to Gameskraft Technology alleging that the company failed to pay Rs 21,000 crore in GST, the biggest such claim in the history of indirect taxation. The notice was for the period between 2017 and June 30, 2022, summarised below:-
Started in 2017, Gameskraft Technologies Private Limited’s (GTPL) portfolio of real-money gaming platforms include online rummy game Rummy culture and a multi-game platform Gamezy that offers rummy, fantasy sports, and online ludo among others.
During 11.11.2021 and 13.11.2021, the DGGI undertook search and seizure operations of the premises of GTPL, during which, various documents and devices were seized and panchnama were issued.
On 17.11.2021, respondents passed Provisional Attachment Orders attaching the Bank accounts of GTPL under Section 83 of the CGST Act, to which, objections were filed by GTPL, pursuant to which, revenue department passed an Attachment Confirmation order dated 30.11.2021.
In December’ 2021, a civil writ petition was preferred by GTPL challenging the aforesaid attachment orders and on 03.12.2021, this Court passed an interim order permitting the petitioner to operate the Bank accounts for limited purposes mentioned in the said order.
Meanwhile, the officials / founders / employees of GTPL were summoned by the respondents for recording of statements and the same continued upto August, 2022.
On 02.08.2022, in addition to the interim order passed earlier in December’ 2021, this Court directed that no precipitative action be taken against the petitioner – GTPL and the matter was heard finally and reserved for orders on 07.09.2022 by continuing the interim orders / directions.
On 08.09.2022, respondent - revenue issued Intimation Notice under Section 74(5) of the CGST Act, calling upon GTPL to deposit a sum of Rs.2,09,89,31,31,501/- along with interest and penalty by 16.09.2022. The said Notice is challenged in W.P.No.18304/2022, in which, this Court passed an interim order of stay dated 23.09.2022.
Gameskraft Technology Private Limited (GTPL) was accused of promoting online betting through cards, casual and fantasy games such as Rummy Culture, Gamezy, and Rummy Time. Gameskraft allegedly was not issuing invoices to customers.
Gameskraft Technology Private Limited (GTPL) was accused of not issuing the invoice which was rejected by GTPL mentioning that the Petitioner has in fact acted in accordance with Section 31(3)(b) of the CGST Act which allows an Assessee to not issue an invoice if the value of supply is less than INR 200. The Impugned SCN does not dispute the fact that more than 99.5% of the supplies made through the platform of the Petitioner had a value of less than INR 200 and therefore, there was no requirement to issue an invoice.
GST officials slapped a 28 percent tax on betting amount of nearly Rs 77,000 crores. "GTPL was engaged in the betting by allowing its players/gamers to place bets in the form of money stakes on outcome of card games played online," the authorities said.
Immediately thereafter, the respondents issued the Show Cause Notice under Section 74(1) of the CGST Act to the petitioner – GTPL as well as its Founders, CEOs and CFOs, who have preferred a civil writ petition before the Karnataka High Court.
The company approached Karnataka High Court challenging the show cause notice. In May 2023, the High Court quashed the show cause notice and proceeded to observe that the department was picking and choosing its arguments.
At the time of hearing, Additional Solicitor General (ASG) N Venkatraman argued that they have approached the Supreme Court as the High Court has relied heavily on a judgment of a two-judge bench of the same court.
According to the ASG, the observations made by the HC in the judgment, have put a pause on other show cause notices leading to a problem to the GST department. He argued that the department has put a pause on atleast 35 different show cause notices owing to the HC's judgment.
The main question/issue that arises for consideration in the petition before the Karnataka High Court was, whether offline/online games such as Rummy which are mainly/preponderantly/substantially based on skill and not on chance, whether played with/without stakes tantamount to ‘gambling or betting’ as contemplated in Entry 6 of Schedule III of the Goods and Services Act, 2017.
Taxation of games of skill is outside the scope of the term “supply” in view of Section 7(2) of the CGST Act, 2017 read with Schedule III of the Act.
A game of chance whether played with stakes is gambling;
A game of skill whether played with stakes or without stakes is not gambling;
A game of mixed chance and skill is gambling, if it is substantially and preponderantly a game of chance and not of skill;
A game of mixed chance and skill is not gambling, if it is substantially and preponderantly a game of skill and not of chance;
Rummy is substantially and preponderantly a game of skill and not of chance;
Rummy whether played with stakes or without stakes is not gambling;
There is no difference between offline/physical Rummy and Online/Electronic/Digital Rummy and both are substantially and preponderantly games of skill and not of chance
Online/Electronic/Digital Rummy whether played with stakes or without stakes is not gambling;
Other Online/Electronic/Digital games which are also substantially and preponderantly games of skill and not of chance are also not gambling;
The expressions, ‘Betting’ and ‘Gambling’ having become nomen juris, the same are applicable for the purpose of GST also and consequently, the said words, ‘Betting’ and ‘Gambling’ contained in Entry 6 of Schedule III to the CGST Act are not applicable to Online/Electronic/Digital Rummy, whether played with stakes or without stakes as well as to any other Online/Electronic/Digital games which are also substantially and preponderantly games of skill;
The subject Online/Electronic/Digital Rummy game and other Online/Electronic/Digital games played on the Petitioners’ platforms are not taxable as ‘Betting’ and ‘Gambling’ as contended by the respondents under the CGST Act and Rules or under the impugned show cause notice issued by the respondents;
Consequently, the impugned Show Cause Notice dated 23.09.2022 issued by the respondents to the petitioners is illegal, arbitrary and without jurisdiction or authority of law and deserves to be quashed.
Against the order of the Karnataka High Court in favour of the ‘GTPL’, DGGI filed SLP before the Supreme Court of India. Upon hearing the counsel, the court issued notices, directed the filing of counter affidavits within 2 weeks, appointed the nodal counsel for compiling relevant material. Further, the Supreme Court on 6th September’ 2023 stayed Karnataka High Court's judgment, which quashed a goods and services tax (GST) notice against Bengaluru-based online gaming company Gameskraft Technology for alleged evasion of Rs 21,000 crore, listing the Special Leave Petition for October 10, 2023.
The CJI on hearing the case directed Gameskraft to file their response to the case and permitted the Directorate of Revenue Intelligence of GST to file a rejoinder to the same.
The court further stayed the operation of the judgment as a result of which the GST department can now initiate proceedings against Gameskraft. Furthermore, the CJI orally observed that the Supreme Court would not want any other High Court following this order.
Other online gaming companies like “Dream 11” were also issued Show Cause Notices amounting to Rs. 40,000 crores which is deemed to the highest figure mentioned in any notice in the history of Indirect Taxes in India. Following the footsteps of Gameskraft Technologies Private Limited, Dream11 headed by Mr. Harsh Jain also file Civil Writ Petition in the Bombay High Court. This petition aims to contest the show cause notice issued by authorities, which accuses them of evading GST and failing to pay the 28% GST on the nominal value of bets.
The fantasy gaming company ‘Dream11’ pulled out its petition after the Maharashtra GST authority informed the Bombay High Court that it had withdrawn its tax notice as the Central tax agency was pursuing the case before the Supreme Court.
Furthermore, the gaming sector faced a significant challenge when, earlier in the year, the GST Council decided to impose a 28% GST rate on the entire nominal value for real-money gaming transactions, which had a considerable impact on the industry. In July and August of 2023, the 50th and 51st GST Council meetings respectively brought substantial changes to the taxation landscape of online gaming. These amendments slated the tax at 28%.
The 50th meeting of GST Council which was held on 11.07.2023, took various steps and measures towards trade facilitation and streamlining the GST compliances which, inter alia, included acceptance of report of Group of Ministers on GST on casinos, race courses and online games and deciding rate of 28% thereon. In case of online gaming, there were certain issues involving valuation, place of supply, rate of tax on which industry players raised various concerns including even the danger of players including start-ups being getting extinct due to being kept under highest tax slab of 28%, that too on gross value or face value of the transaction. The 51st Council meeting held on 02.08.2023 primarily discussed about the taxation of casinos, online gaming and horse races. The GST shall be levied on the actionable claims supplied in casinos at the entry level.
GST on online gaming – Key points from 50th GST Council meeting (11.07.2023):
GST on online gaming- Key points from 51st GST Council meeting (02.08.2023):
The Council also decided to tax all online gaming activities irrespective of whether such activities are a game of chance on skill. Both types of online games will be treated at par for tax purposes.
Finance Minister has introduced CGST Act (Amendment) Bill, 2023 and IGST Act (Amendment) Bill, 2023 in the Parliament on 11th August, 2023 to implement decisions of GST Council to levy 28% tax on online gaming. Both the Bills have been passed by the Lok Sabha on same day and later by Rajya Sabha.
The decisions taken during the 50th and 51st GST Council meetings mark a significant development in India’s online gaming taxation. While the uniform 28% GST aims to simplify the taxation process, its implementation has sparked debates and concerns among stakeholders. The tax, effective from October 1, 2023, could either bolster the government’s revenue or potentially curb the growth of a burgeoning industry.
As of December 2023, these online gaming companies have been slapped with 71 show cause notices involving alleged evasion of GST of Rs 1.12 lakh crore in 2022-23 and the first seven months of 2023-24 excluding interest and penalty. Since the notices were issued under section 74, which empowers the department to impose a penalty of up to 100 percent of the tax demand, it may take the amount to over Rs 2.3 lakh crore, including interest.
From October 1, 2023, 28 percent GST was imposed on the full face value of online gaming bets by the GST Council, which promised to review the levy after six months. The industry has been seeking to have the 28 percent GST calculated on the gross gaming revenue instead of the face value of bets.
However, the biggest blow to the gaming companies came when the GST Council imposed the tax retrospectively (from the past). Further, as per the Council’s interpretation of retrospectivity, all online games involving bets played between August 2017 and 1 October 2023, irrespective of skill or chance, needed to pay a GST rate of 28 percent on the full value of the bets placed, as it fell under the category of gambling.
In addition to the tax changes, the government has also introduced specific rules that will be applicable to online gaming companies operating within India. These rules include registration and compliance requirements.
The higher tax rate significantly increases the cost of participating in online gaming activities. Industry associations and prominent startups have expressed their deep disappointment with the new regulations. They believe the new rules will have a detrimental impact and the entire industry will be at risk of disappearing.
“This is an extremely unfortunate decision as charging a 28% tax on full face value will lead to a nearly substantial increase in taxation and prove catastrophic for the industry. A tax burden where taxes exceed revenues will not only make the online gaming industry unviable but also boost black-market operators at the expense of legitimate tax-paying players, further undermining the industry’s image and capacity to survive,” Malay Kumar Shukla, secretary of E-Gaming Federation, said in July.
The gaming association All India Gaming Federation (AIGF) also echoed similar sentiments. “We believe the decision by the GST Council of valuation on deposits will severely impact the online gaming sector and result in a situation where a majority of players, including the MSMEs, will no longer be able to survive in the face of the increased tax liability of 400 per cent.”
Gaming companies have filed a petition before the court on what they say is retrospective tax demands, adding up to ?1.5 lakh crores. The Supreme Court on Friday (December 15, 2023) posted a batch of writ petitions filed by online gaming companies, including Dream 11, Games 24x7, and Head Digital Works, challenging the constitutional validity of imposition of a 28% GST, to January 8, 2024.
A bench comprising Chief Justice of India DY Chandrachud, Justice JB Pardiwala and Justice Manoj Misra refused to pass interim order in favour of the petitioners.
The Supreme Court on Monday 8th January’ 2024 issued a notice to the Directorate General of GST Intelligence in response to petitions filed by the E-Gaming Federation and gaming start-ups Games 24x7 and Head Digital Works challenging the tax demands, which they say are retrospective. The Supreme Court has asked the government’s goods and services tax enforcement body to submit written responses to the petitions within two weeks. The court, however, did not issue a stay on the tax notices. Its final hearing will include pending appeals at the Supreme Court as well as all similar cases pending at various high courts. Adv. Harish Salve representing the petitioners raised 3 very interesting questions:
The matter was adjourned to be listed on 2nd April’ 2024.
The Supreme Court on Friday (April 5) transferred to itself the petitions pending in the High Court challenging the imposition of 28% Goods and Services Tax (GST) on online gaming companies.
A bench comprising Chief Justice of India DY Chandrachud, Justice JB Pardiwala and Manoj Misra ordered the transfer of 27 writ petitions pending in eleven High Courts and tagged them with the petition pending in the Supreme Court filed by GamesKraft. The order was passed allowing a transfer petition filed by the Union of India. The matter was posted in the last week of April 2024.
The Supreme Court on May 3 indicated that in July 2024 it would hear a batch of petitions challenging demand notices asking online gaming companies to pay 28 percent Goods and Services Tax (GST) on the full-face value of bets.
A bench led by Chief Justice of India (CJI) DY Chandrachud said this while hearing a plea filed by Baazi Networks Private Limited, which owns Baazi Games, challenging notices issued to them.
During the course of the hearing, lawyers for the gaming companies argued that while the government has told the court that it would not act on notices, orders are likely to be passed in some case. Additional Solicitor General (ASG) Venkatraman, who appeared for the GST department, asked the lawyers to get in touch with him to sort this out.
The CJI, while indicating that the court will hear the plea after summer vacation and asked lawyer who represents many of the gaming companies, to write an email in July 2024 to fix dates for hearing.
A batch of 30 petitions by online real money gaming companies challenging retrospective GST notices demanding payment of thousands of crores calculated at 28 percent on the face value of bets is currently pending before the Supreme Court.
No relief likely, GST from online gaming jumps five times: Government Official: - Online gaming will not be discussed by the GST Council’s fitment committee but will be brought directly before the Council for review. (Moneycontrol.com 23.04.2024).
Online gaming companies have been reeling under a slew of retrospective tax no
tices since September 2022, with Gameskraft, Delta Corp and others receiving notices to pay Rs 1.12 lakh crore (the total due), as per the GST department’s calculations (at 28 percent on the face value of bets). The sector might also not get any prospective relief at the next GST council meeting scheduled to be held in June 2024, after the formation of the new government, as many companies are hoping.
A senior government official told Moneycontrol.com that any change in the 28 percent Goods and Services Tax (GST) on the face value of online gaming bets is unlikely in the review.
“The GST Council meeting will happen in end of June’ 2024, after the new government comes in. It will review online gaming revenue from October 1 (2023) onwards,” the official told Moneycontrol.com “The Council had decided 28 percent on the face value, and this is likely to continue as the GST revenue of the government from online gaming has increased 5-6 times in the last six months. The tax data will be compiled and presented before the Council.”
From October 1, 2023, a 28 percent Goods and Services Tax was imposed on the full face value of online gaming bets by the GST Council, which promised to review the levy after six months. The industry has been seeking to have the 28 percent GST calculated on the gross gaming revenue instead of the face value of bets.
Gross gaming revenue (GGR) is the difference between the amount wagered minus the amount won.
Full face value is referred to as the bet value or contest entry amount.
From October 1, 2023, every time a game is played, a user has to pay 28 percent GST on the deposits made, which is currently being absorbed partially of fully by the online gaming companies. In addition, foreign online money gaming companies (FOMGCs) are required to register for GST and collect tax in India.
These measures were included in amendments to the Central Goods and Services Tax laws, which received Presidential assent on 18 August’ 2023 following a lengthy deliberation of tax rates and valuations and a recommendation by the GST Council that a 28% GST be levied on the entire amount deposited by a player rather than on individual bets. The final structure also treats games of skill and games of chance equally, as opposed to treating them separately with respect to tax rates and valuation.
Importantly, it should be noted that from an income tax perspective, even before the GST changes, the online gaming industry was burdened by the requirement that a 30% tax be deducted at source (TDS) on a player’s net winnings. The previous threshold of INR 10,000 to trigger the tax was eliminated on 1 April 2023 so all winnings from online gaming are subject to the withholding tax. The addition of a 28% GST to this tax burden likely will have negative consequences for the industry.
Online gaming will not be discussed by the GST Council’s fitment committee but will be brought directly before the Council for review, the official cited above added. The fitment committee comprises revenue officials from both the Centre and states.
“Earlier the GST from online gaming was at Rs 200 crore per month, approximately. The figure has gone up quite substantially since October 1, 2023 to Rs 1,100 crore per month. The last revenue assessment from online gaming was done in Haryana and Karnataka,” he said.
In the October-December 2023 quarter, GST from online gaming touched Rs 3,470 crore, a more than five-fold jump from the Rs 605 crore collected in the previous quarter.
“The online gaming industry may have to work on ways to increase its revenue through other business strategies,” the official added.
Foreign Online Money Gaming Companies (FOMGCs) should assess the impact of the new online gaming laws on their business operations and determine a way forward for assessing and meeting their compliance obligations in India and also may need to consider revisiting the terms of their agreements with players.
FOMGCs should become familiar with the new rules and take the following into account:
How Will The 28% GST Change Online Gaming in India?
The 28% GST on online gaming will have a significant impact on the online gaming industry and its stakeholders in India. For one, the cost of online gaming will increase for the end users: As mentioned earlier, the end users will have to pay a 28% GST on their entire entry amount, regardless of whether they win or lose. This will increase their effective tax burden by more than three times compared to the current scenario.
The profitability and sustainability of online gaming platforms will also decline. The online gaming platforms will also suffer from the high tax rate as they will have to bear the compliance cost and pass on the tax burden to their customers. This will reduce their margins and cash flows and affect their ability to invest in research and development, technology up-gradation, marketing, and customer service.
The 28% GST on online gaming can be the death knell for India’s online gaming industry by influencing the development of the gaming market in India negatively. It will discourage the participation and engagement of online gamers, drive away legitimate and licensed online gaming platforms, create a vacuum for illegal and unregulated operators, and affect the contribution of the online gaming industry to the economy. It is estimated that shift from current 18% on GGR (Gross Gaming Revenue) to 28% on CEA (Contest Entry Amount), may result in de-growth of the industry and parallel reduction in GST revenue collection. De-growth of the industry may also result in significant job losses, reduced investment, making small industry players (gaming start-ups) unviable. The GST Council should reconsider its decision and adopt a more rational and reasonable tax regime for online gaming that is in line with global standards and best practices.
Legally, there exists a clear distinction within Online Gaming Industry between games of skills and games of chance. Hon’ble Supreme Court and several High Courts on several occasions have recognised skill-based games as a legitimate business activity protected under article 19(1)(g) of the constitution of India and hence taxable at 18% of the platform fee only, whereas the latter is the res extra commercium activity in nature and hence excluded from the protection under article 19(1)(g) of the constitution of India and taxable at 28% of the total contribution made.
AUTHOR’S RECOMMENDATION:
Based on the finding and the representation of the industry to the GST Council, the Group of Ministers (GoM) and GST Council should rely on established legal precedents that differentiate between online games that are constitutionally protected activities under Article 19(1)(g) and gambling and betting that are res extra commercium. It is further recommended that in order to uphold the constitutionality of the recommendations of the GoM, the government should also consider the principle of preponderance of skill in order to assess the applicability of GST. The IT Rules provide for every game to be certified by a Self-Regulatory Body to be recognised by the Central Government. Thus, the GoM report may also consider these developments and continue to differentiate between games of skill and games of chance & consider the certifications/approvals to be provided by Self-Regulatory Body before arriving at a recommendation on value of supply. A thoughtful approach to taxation, taking into account industry dynamics, consumer affordability, substitutability, and competitiveness, can help maintain a sustainable and thriving gaming ecosystem.
The government is considering granting relief to the online gaming industry by exempting them from paying the Goods and Services Tax (GST) at the rate of 28% on the full face value of bets for the pre-October 1, 2023 period, official sources privy to matter told Financial Express, on condition of anonymity.
This would mean that the highly contentious “retrospective levy” of the tax would be annulled, irrespective of the outcome of the Supreme Court case in this regard.
In February, revenue secretary Sanjay Malhotra had told Financial Express: “The matter (28% GST of full-face value of bets for pre-October 1 period) is in the court. The courts and, if need be, the GST Council will decide this matter. The judiciary and the council always take a prudent, balanced view of issues.”
Disclaimer: The legal information provided in this article is just that – legal opinion and not a legal advice. It asserts that no warranties or representations are given in relation to the legal information. And it seeks to exclude any liabilities that may arise out of the use or misuse of the information.
By CA TUSHAR JAIN
Email Id: catusharjain@gmail.com
Comment: