Five reasons why continuation of 18% GST on online skill gaming is needed

It is well-known that the Group of Ministers (GoM) nominated by the GST council on online gaming, casinos and race courses is likely to meet mid-May to finalise their view, which is likely to hike the GST rate from the existing 18 percent to 28 percent.

Against this backdrop, the online gaming industry has approached the GoM to reconsider the decision with the strong rationale against any hike in GST, read here:

⮚ A high GST regime will thwart the nascent industry and Prime Minister’s vision for making India a gaming superpower—The Prime Minister’s views on 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 youth 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 provide further boost India’s AVGC sector.

⮚ Economic growth being driven by the Online Gaming sector – The sector has contributed Rs 1,450 crore for FY 21. The industry has attracted Rs 10,000 crore of FDI with a potential of Rs 15,000 crore more in the next three years. It is expected that India’s online gaming industry would be worth USD 5 billion by 2025.

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.

⮚ A pragmatic tax regime on skill-gaming platforms will lead to user growth / the tech and start-up spaces will grow—For a long time, gaming in India was considered a recreation activity for children. The country also missed the PC and console gaming buzz due to high hardware cost and limited digital penetration. However, India has built a strong foothold in mobile gaming, owing to rapid increase in smartphone penetration, changing consumer behaviour, low-cost high-speed internet access, and ease of digital payments. This has helped tech and start-up 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 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 that the skill-based gaming industry does not constitute to gambling or lottery. Combining online skill gaming to sin tax will adversely impact the industry.

⮚ Lessons from global taxation practices on 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 per cent. 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.