GST on Online Gambling

Why in news?

The GST Council has said that the government will impose a goods and service tax of 28% on the turnover of online gaming companies, horse racing and casinos.

What is the market overview of gaming in India?

Online gaming market - The revenue of the Indian mobile gaming industry is expected to exceed 1.5 billion dollar in 2022, and is estimated to reach 5 billion dollar in 2025.
While India’s gaming market is currently smaller than the US and China, it is worth about US 1.5 dollar billion and is expected to triple in size to reach US 5 billion dollar by 2025.
India’s percentage of new paying users (NPUs) in gaming has been the fastest growing in the world.
Types of Online game - Games of skill and Games of chance
1. A game of skill – It is the one in which a player’s superior knowledge, training, attention, experience, personal traits, and abilities are crucial to success.
2. Example - Fantasy sports (Dream 11 and MPL fantasy cricket), casual games, and card games (Rummy or Poker)
3. A game of chance – It is the one in which chance rather than skill determines the outcome.
4. Example - Playing cards, roulette, rolling a dice, or even picking a numbered ball are reflected upon as chance-based games.

Online Gaming 2023

What is the decision of GST meeting?

The latest provision means that tax will be levied on the entry bet at 28% rather than the earlier tax which is levied on the Gross Gaming Revenue (GGR) at 18%.
It is considered to do away with the distinction between game of skill and game of chance, thus, treating all games as demerit goods, thereby attracting a 28% GST rate.

The government will bring amendments to the GST-related laws to include online gaming and horse racing in Schedule III as taxable actionable claims.
As per GST, an actionable claim is defined as goods under the Central Goods and Services Tax Act, 2017.
It is a claim to an unsecured debt or a claim to any beneficial interest in movable property that is not in the possession of the claimant.
So far, lottery, betting, and gambling were classified as actionable claims. Now, horse racing and online gaming will be added.

All India Gaming Federation (AIGF), founded in 2016, is a self-regulatory apex industry body for online skill gaming in India.

What are the advantages of the move?

Transparency - The move will simplify the mechanism, eradicate complexity and imbibe transparency.
Check on addiction- The Government quoted that the increase in taxation would reduce children addiction to online gaming.
Tax payments - The move would result in a 55% increase in GST payments.

What are the issues in this aspect?

Entire gaming industry as gambling- The Government considers the entire gaming industry as gambling, which is not only against the established jurisprudence but may also fall foul of the CGST Act 2017 itself.
Even within the games of skill, all the games cannot be equated.
Impact on online gambling companies- It will increase the tax burden where the tax exceeds the revenue and boost the growth of illegal gambling platforms.
Game of chance vs Game of skill- Under the CGST Act, actionable claims are sought to be excluded from the ambit of GST, except for lotteries, betting and gambling.
‘Betting and gambling’ must be interpreted as betting on a game of chance and not staking or betting on a game of skill.
Games of skill vs. Casino games- It is extremely difficult to distinguish between incidence of taxation on casino games with some games of skill like rummy and poker, which are played both online and on the casino floors.
Offends Article 14- It offends the fundamental principle that ‘equals are to be treated equally and unequals are to be treated unequally’ and falls foul of Article 14 of the Constitution of India.
Against judgements- Various Court judgements have reaffirmed the states of online skill-based games as legitimate business activity protected as fundamental right under the Constitution.
Increase in black market activities - The tax could hinder the Digital India Initiative, leading to an increase in black market activities and criminal offences, due to a 400-500% increase in the GST burden.
Benefit offshore gambling sites - The change may benefit offshore gambling sites, leading to a significant tax loss for the government and exposing Indian gamers to unregulated websites.
Deter foreign investment - The industry also fears that the change could deter foreign investment.

References

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