GST On Online Gaming Can Be Increased To 28%; Objective Is To Discourage Chance-Based Gaming?

The Goods and Services Tax (GST) Council could increase the tax rates for online gaming from 18% to 28% in order to downgrade games involving gambling and betting.

Current Scenario

The current tax rate is 18% of the platform fee, which works out to 5-20% of the contest entry amount.

Games based on chances/luck such as racing, betting and lotteries are taxed much higher at 28% of the contest entry amount. 

Skill And Chance Gaming Unified

A group of ministers (GoM) on taxation of casinos, race courses and online gaming is in favor of removing the distinction between skill gaming and chance gaming.

As a result, the former category of games will also be taxed at 28%.

The GoM will decide on the taxation two weeks after considering the report of a committee of officers.

Possible Measures

There are two options here. 

One, levy the tax on the contest entry amount.

Or, levy it on only the gross gaming revenue (GGR)/ platform fee charged by the gaming platform.

Factors To Consider

Online gaming is a bustling industry with an annual turnover of Rs 30,000 crore and growing by 20-30%/annum.

The data was provided by Meghalaya chief minister and convener of the GoM Conrad Sangma after a group meeting. 

He said that the society, the Centre, the state governments as well as the industries have to be kept in mind before taking a call.

Decision-Making Authority

The GST Council will take the final decision after consideration of the GoM recommendations.

GoM member and West Bengal finance minister Chandrima Bhattacharya wanted no difference between skill gaming and chance gaming since these have an adverse effect on society by pushing children towards gambling.

The difference in taxation of online gaming and chance gaming could require amendments to the GST laws.

Law Amendment Required

Rule 31A of CGST Rules 2017 reads as the value of supply of actionable claim in the form of chance to win in betting, gambling or horse racing in a race club shall be 100% of the face value of the bet or the amount paid into the totalisator.

Thereby Rule 31A can be understood to strictly apply to games involving betting, gambling or horse racing, etc.

Since the rule uses the word ‘chance’ before describing the activity, it is clear that the Rule does not apply to online games based on skill.

Issues To Ponder

Two of the main issues surrounding the online gaming industry is whether games of skill should also be treated the same as games of chance or be viewed through a different lens.

The value on which GST should apply (including the prize pool or only on game/platform fee), will also have to be decided. 

The government has its task cut out- it needs to clarify or amend the law to provide that any change in methodology should only apply prospectively, as per  Pratik Jain, partner at Price Waterhouse & Co LLP.