What should the GST rate on online games be? Should it be charged on the full bet amount, or only on the platform’s margin?
Rate Differentiation Leads to Problems, Sources Say
GST levy on online games may end up with a uniform rate, possibly at the highest 28 per cent slab reserved for luxurygoods, according to anonymous sources quoted by the Hindustan Times, who are knowledgeable about discussions going on in government circles.
There are no established methods or fixed tests to differentiate between games of skill and games of chance, as the sources state, and the two categories often overlap. “For example,rummy is a game of skill, but distribution of cards to players is nothing but chance,” explains one of them. Differentiated rates of 18 per cent and 28 per cent for games of skill and of chance respectively expose the system to misuse and corruption risks and end up creating a lot of work for the court system.
Ministerial Panel is Looking into Issue
The final decision will be taken by the Union’s apex authority on matters related to indirect taxes – the GST council, which consists of state finance ministers and is chaired by the centre’s minister of finance. The GST council is waiting for the recommendations by the eight-member Panel of Ministers that was specially appointed to look into GST rates and applicability for gaming and gambling websites, casino app providers and rececourses.
The Group of Ministers (GoM) was constituted on May 24 under the leadership of the Deputy Chief Minister of Gujarat Nitil Patel with seven members, and on June 11 the panel was reconstituted with the addition of the finance minister of Telangana Harish Rao.
“The GoM is expected to submit its report to the council next month. The council may discuss all issues related to online gaming and take a considered view,” according to one of the HT sources. The GoM is to provide a recommendation whether the whole transaction or bet amount should be levied with GST, or the tax should be applied only to the operator’s margin, commission or service fee.
Restrictively High GST Rates Might not be the Right Solution, Industry Says
“… unlike physical casinos, where the age of a player can be easily verified, in online gaming platforms, there is no effective way to check entry of kids as young as 13, which could be detrimental for the society. Hence, online gaming should be treated like lottery, a sin product, and attract the highest rate of 28%,” sais one of HT sources, explaining the thought process going on with the authorities.
“This is in line with global best practices where tax rates have been seen to range from 6% to 21%… If rates are increased beyond this threshold, there is a tendency for both operators and players to resort to black market operations, even within the Indian online gaming community,” argues Roland Landers, CEO of the All India Gaming Federation (AIFG).
“A regulated market is better than an illegally functioning one,” as industry researchers at SevenJackpots point out. “Examples of effective gambling regulation are found easily: licensing, taxation, and monitoring come first. Corruption and lobbying need to be rooted out with precise legal definitions, altogether raising consumer protection standards,” the experts continue.
Proper regulation, according to the analysts, would not only bring significant contributions amounting to lakhs of crores to the treasury, but would also enable the successful addressing and mitigation of numerous “sin product” side effects, which would otherwise remain untackled. Issues varying from consumer protection and mental health to privacy, information security and data protection can be brought under the purview of the regulations.
GST Enforcement on the Pause Until Clarifications are Issued
Earlier, the Punjab and Haryana High Court ruled an order directing the GST law enforcement authorities to halt all GST recovery investigations and search measures until the GST Council and the especially appointed ministerial panel issue clarifications on GST applicability. The HC was petitioned by the company Witzeal Technology which owns and runs real money gaming platform BigCash after suffering measures aimed at tax recovery which were “coercive” as per their plea.
“… no adjudication and no coercive steps would be taken against the petitioner till such time the necessary clarification is issued by the empowered Group of Ministers but they may be permitted to investigate the matter so that if and when the clarification comes they would not have to necessarily reinvent the wheel,” said the HC bench composed of Justices Ajay Tewari and Alka Sarin on September 29. A similar case has been instigated at the Mumbai High Court which is still pending.