SUMMARY
The Group of Ministers (GoM) will meet in mid-May to finalise a move to increase GST on online gaming to 28%
The online gaming sector has contributed INR 1,450 Cr for FY 21
The online gaming industry has nearly 400 companies employing around 45,000 people
The Group of Ministers (GoM), nominated by the GST council on online gaming, casinos and racecourses, is scheduled to meet in mid-May to finalise their views to hike the GST rate from the existing 18% to 28%.
Therefore, the online gaming industry has approached the GoM to reconsider the decision with a strong rationale against any GST hike.
The industry has raised a number of concerns regarding the GST regime.
High GST Regime Will Thwart Nascent Industry
The Prime Minister’s views on the gaming industry are well known. He said the financial plan’s focus this year was on AVGC (Animation, Visual Effects, Gaming and Comic) because the gaming market is immense universally and the number of youths associated with this market worldwide is expanding.
The high taxation, experts strongly believe, would negatively impact the nascent industry. The transactions on online gaming platforms are 100% digital and make a significant contribution to Digital India.
Largely driven by the entrepreneurial community, India’s online gaming industry plays a crucial role in taking the startup spirit in the country to the next level and providing a further boost to India’s AVGC sector.
Economic Growth That Gaming Brings
The sector has contributed INR 1,450 Cr for FY21. The industry has attracted INR 10,000 Cr of FDI with a potential of INR 15,000 Cr more in the next three years. It is expected that India’s online gaming industry would be worth $5 Bn by 2025.
The online gaming industry is directly linked to the growth of several other sectors such as banking, payment gateway, telecom, fintech, sports and entertainment. The online gaming industry has nearly 400 companies employing around 45,000 people.
Benefits Of A Pragmatic Tax Regime
For a long time, gaming in India was considered a recreation activity for children.
However, India has built a strong foothold in mobile gaming, owing to a rapid increase in smartphone penetration, changing consumer behaviour, low-cost high-speed internet access, and ease of digital payments. This has helped tech and startups to flourish significantly.
A higher tax burden will make the industry unviable, and online gaming platforms have appealed to the government on numerous occasions to not treat skill-based online games the same as gambling while sharing a case in point on how a different and rational tax treatment of online skill-based games can help in eliminating non-compliance, leakage of revenue and grey markets.
Difference Between Games Of Skill Vs Games Of Chance
An understanding of games of skill as distinct from games of chance and their reflection as such in tax rates and methods of taxation is necessary.
In a landmark judgment, The Punjab & Haryana High Court in an order dated 18th April 2017, has ruled that playing Online Fantasy Sports Gaming (OFSG) involves a substantial degree of skill thereby classifying it as a ‘game of skill’.
It does not come under the ambit of the Indian Public Gambling Act 1867 and is declared a legal business in India. It specifically afforded the protection of the right to free trade and commerce guaranteed under Article 19 (1)(g) of the constitution of India. Similar positive judgments have been made on the Online Rummy industry by several High Courts and even the Supreme Court of India.
Online games of skill are inherently different from games of chance, and the skill-based gaming industry does not constitute gambling or lottery. Combining online skill gaming to sin tax will adversely impact the industry.
Lessons From Global Taxation Practices In Online Gaming Industry
Drawing parallels to the international online gaming industry tax structures, industry experts have pointed towards some leading international markets like the USA, UK, Australia and Germany, and how they levy tax on GGR at a rate between 15-20 percent.
It has been witnessed and established internationally that markets which started taxing the prize pool instead of the GGR have had to revert back to taxing only to GGR as it resulted in non-compliance, revenue leakage and grey markets.
