Online gaming and GST in India – far from adopting the best practices around the world

Gunjan Prabhakaran and Payal Thakur

Our last article (dated 18 May 2022) highlights the differences between ‘gaming’ and ‘gambling’ which elaborates on the formation of ‘skill games’ such as ‘skill games’. The GST rates applicable to online gaming should revolve around a technical assessment and each offer should be verified through the lens of ‘efficiency’ such as ‘opportunity’. However, this test would have been more relevant if the government had adopted differential GST rates and assessment methods to play ‘efficiency’ versus ‘chance’.

Gaming vs. Gambling, Skills vs. Opportunity: Controversy surrounds the gaming industry in India

The gaming industry is awaiting the outcome of a meeting of the Group of Ministers (GOM) with hope and optimism, which was expected to discuss and make recommendations on how to impose taxes on online gaming platforms and how to assess taxation in this sector. However, with the announcement, that optimism has waned. It appears that numerous applications have not been heard for consideration and acceptance of best practices around the world, and a maximum GST rate of 28% has been proposed for online gaming.

Worldwide, most countries regulate the online gaming sector with specific laws relating to various aspects of online gaming, such as licensing, taxability, assessment, and so on. For example, the UK imposes a separate tariff on online gaming called ‘Remote Gaming Duty’ (RGD). ) Which is set at 21% on the remote gaming provider’s ‘profit’ and is played by UK residents. Further, ‘profit’ would mean the difference between the total amount owed to UK residents and the amount paid separately as a reward or whatever goes into the winning pool. So, in a nutshell, gaming companies that run games on their platform are taxed on the ‘wreck fee’ they earn.

In the United States, taxes are levied at a federal and state level, with most states imposing a value-based tax on Gross Gaming Revenue (GGR). Generally, GGR means the total annual amount of cash bets on games and admission fees, less than any amount paid as prize money. Some states in the United States allow certain expenses to be deducted from consistent gaming income. This ensures that the tax is levied on the amount received, less than what is paid. Thus, even in the United States, although the assessment method may differ, in principle the tax is levied on the amount of ‘rack fee’ earned by gaming companies. Further, globally, the tax rate for online gaming is around 20%.

In India, since gambling is taxed at a maximum GST bracket of 28%, the industry expected that online gaming would be separated by a court of law as a ‘game of skill’ and a lower GST rate would be levied on paid service fees. Rate

The value of the global tax assessment prize money does not mean the pool that is distributed to the winner. If India follows the best practices worldwide, then GST should be levied only on the material that gaming companies collect and retain for their one platform payment service and not on the full prize money. The gaming industry is requesting through numerous presentations to consider the best practices worldwide when imposing GST.

That GOM met on the 18th In May 2022, they announced their decision on GST rates and valuation system, which could have a profound effect on the functioning and efficiency of India’s online gaming industry. As far as GST rates are concerned, GoM has unanimously recommended a maximum GST rate of 28%. Increased tax burdens could push end users away, which in turn could put serious strain on the customer base and the functioning of the gaming industry.

The online gaming industry has shown tremendous growth over the past few decades, with significant growth in government coffers; Reducing the number of subscribers will reduce the share of government revenue from this sector. Further, it has been indicated that tax will be levied on initial bets and gaming amounts and GOM does not appear to be in favor of levying GST on each bet or prize money. This may provide some assistance in an otherwise depressing approach and the assessment method seems to be traveling the path of best practice worldwide.

The GOM is expected to submit a detailed report in a few days and once the details are released, it will be important to assess the impact on the industry and explore the legal framework for making an impact. Nevertheless, its implementation through formal communication and appropriate notification / clarification from the GST Council will be the key to managing the transformation.

(Gunjan Prabhakaran Partner and Leader – Indirect to BDO India and Payal Tagore Partner – Indirect to BDO India. Opinions are the author’s own.)

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