Reports that the Central government is considering a uniform GST rate for all online gaming products has been causing concerns in the industry over which rate slab will be selected. The question of whether the indirect tax will be made applicable to the full transaction or bet amount or just to the operator’s margin is also giving rise to worries.
According to Aakash Taneja, product head at gaming platform GMNG, the existing GST mandate for online gaming leaves a lot of room for misinterpretation because definitions are not clear enough. He says that, “A uniform tax rate is the best way to move forward for ease of understanding and execution both for the platforms as well as its users”.
Tarun Gupta, founder of online esports platform Ultimate Battle, agrees that the introduction of a uniform GST rate on the whole gaming industry can help it grow, but he also stresses that while games of chance attract a GST rate of 28 per cent, “games of skill don’t fall under the ambit of gambling and gaming laws. A GST rate of 18 percent is applicable as per the industry standards.”
A special Panel of Ministers was constituted in May this year under the lead of Gujarat Dy CM Nitin Patel with the task to examine the existing legislation and court decisions in view of issues of GST rates and applicability for Pure Win and similar casino platforms, real money gaming sites, lotteries and race courses.
The Group of Ministers (GoM) was initially created as a seven-member body, but in June it was reconstituted to include Telangana’s Minister of Finance Harish Rao. The GoM is expected to issue its recommendations within six months upon its constitution to the GST Council, which will make the final decision.
Luxury GST Rate Slab Too High
Many operators expect online gaming to be charged with 18 per cent GST, but a number of industry members fear that the highest rate slab of 28 per cent reserved for luxury goods will be made applicable to all gaming products.
According to Aakash Taneja, such a decision will put the nascent Indian gaming industry under a lot of pressure and will make it unsustainable. This “would surely be a deterrent for future investments,” he warns.
Tarun Gupta adds that a GST of 28 per cent charged over the fees of gaming platforms will push away new players who would otherwise wish to enter the market. “Platform fees are normally a small amount” and can make a sustainable business only if in large volumes.
GST on Prize Money will Lead to Overtaxation
Another major concern for the industry is whether GST will become applicable to the full transaction or bet amount or the ‘prize money”.
Sunil Yadav, CEO of online fantasy sports website PlayerzPot, points out that each gaming platform collects some fixed amount from players. Out of this amount, “a certain portion is deducted and retained by the online gaming company as ‘platform fee’/‘rake fee’/‘gross gaming revenue’, and the balance amount is pooled under an escrow account, which is distributed as prize money to the winners. This platform fee is taxable under GST in online gaming,” he explains.
According to Indian income tax legislation, winnings and prizes exceeding ₹10,000 from online gaming are chargeable with a flat rate of 30 per cent with a surcharge of 4 per cent for the Health and Education Cess (or a total of 31.2 per cent). The tax on earning from online roulette and other casino and real money games should be deducted at the source, or should be applied by the winners in their tax returns.
Adding GST to the income tax and thus “levying extra taxation on prize money will be detrimental for gamers and gaming platforms,” says Ultimate Battle’s Gupta.
Horse Racing Provides a Good, Yet Negative, Example
Traditional horse racing industry is able to provide a clear example of the negative effects of a high 28 per cent GST applicable to the full face value of the bets, and not just on the rake fees charged by Turf Clubs.
According to a recent report dedicated to sports betting in India, the introduction of the tax “raised service prices, lowered turnovers, and threatened the sustainability of the entire horse racing ecosystem,” which “has led to the rise of black markets, defeating the purpose of a higher tax collection”.
The paper points out to the changes in turnovers of the three biggest Turf Clubs in India, Bangalore, Hyderabad, and Calcutta, which had combined total revenues to the amount of ₹3,482 crore for FY2017. After the introduction of GST in July 2017, the combined turnover of the three clubs dropped threefold to ₹1,193 crore.