The 49th GST Council meeting held in New Delhi on 18th February predictably skirted the issue of GST on online gaming. Thus, it is status quo, that is 28 percent GST on online gaming without indulging in hair-splitting as to the game involves skill or just chance. Earlier, games of skill attracted a softer 18 percent whereas that of chance attracted 28 percent.
A game of skill is one where the outcome is dependent on the expertise, practice, and experience of the player and not merely on chance. Some examples include rummy and fantasy sports games like Dream 11. Whereas games of chance are treated similarly to betting, gambling, and horse racing. Thus, they were earlier subject to Rule 31A of the CGST Rules, 2018, which charges a higher GST rate.
However, the line between skill and chance can be thin often as was the case with Gameskraft Technology. The Directorate General of GST Intelligence (DGGI) had issued a INR 21,000 crore show-cause notice to the Karnataka based online gaming company, Gameskraft Technologies Private Limited on the ground it had not depositing GST for the period between 2017 and June 2022. Amidst the Gameskarft controversy, the GST Council had constituted a panel of Group of Ministers (GOM) to examine and formulate a revised GST structure for online gaming industry.
The panel has recommended certain interim changes in the rate of GST to be made applicable on online games along with the incidence of levy of GST on online games organisers. Clubbing together all its games, including rummy, into games of chance, thus inviting a higher GST tax rate of 28 percent and rendering the skill category otiose is one such interim measure. The 28 percent rate will be chargeable on ‘gross revenue’ that is, on the total stake value and not on the platform fee paid by the user.
Strictly speaking and in all fairness, GST should not be on the stake value but only on the platform fee. To wit, if one has to pay Rs 1000 to play rummy online out of which Rs 900 is the contribution by ten members thus making for a jackpot of Rs 9000 and the remaining Rs 100 being the platform fee from each member, GST should be levied only on Rs 1,000 and not on Rs 10,000 which is the case at present.
The GoM obviously is in no hurry. It is waiting for inputs from states so that it can take a holistic view of casinos, online games and betting on races. Meanwhile, a self-regulatory body, mandatory know-your-customer norms for verification, and a grievance redressal mechanism are among the key proposals in the draft rules for online gaming, released by the Ministry of Electronics and IT (MeitY) on 2nd January 2023.
Online games will have to register with a self-regulatory body, and only games cleared by the body will be allowed to legally operate in India. Online gaming companies will not be allowed to engage in betting on the outcome of games, the proposed rules say. The self-regulatory body will have a board of directors with five members from diverse fields, including online gaming, public policy, IT, psychology and medicine to ensure that violence, sex and other socially undesirable traits like addiction are not infused through online game in the minds of the players online. It is believed that 40percent to 45 percent of the players are women.
While all these are inevitably leading to delay in the GST reforms on online games, the government should not be seen to dither or thrive when things are ambivalent.
Covid 19, gave a leg-up to what purists call the vice industry. KPMG, expects the online gaming industry to clock a business of Rs 29,000 crore in 2024-25 up from Rs 13,600 crore in 2020-21. The government should not kill the hen that lays golden eggs. Section 115B of the Income tax Act imposes a 30 percent tax on winnings from online games without allowing expenses which is normally in the range of 10 percent to 12 percent. And as per section 194B it is for the organiser to deduct tax at source at the rate of full 30 percent thus allowing no room for evasion.
While no one has any grouse against the income tax law, it is the GST which is sticking out as a sore thumb. GoM should recognise the fact that crossword puzzles, bridge, rummy, poker, scrabble and other games that require application of mind and an element of skill should not be bracketed with the vice industry i.e. gambling. A GST overkill would drive the industry underground or the players into the arms of undesirable apps as the virtual world is an untameable monster.
—The author, S Murlidharan,
is a CA by qualification, and writes on economic issues, fiscal and commercial laws. The views expressed are personal.
Read his previous articles here
(Edited by : C H Unnikrishnan)
First Published: Feb 21, 2023 2:21 PM IST
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