An overlap on games of skill and games of chance could be the key towards a uniform tax rate for India’s nascent online gaming industry.
From a tax perspective: skill-based games vs games of chance
In May, a seven-member group of ministers (GoM) was convened by the GST Council to examine and address taxation issues related to the online real money games India sector. One of the issues was the different tax rates levied to the segments under the umbrella of gambling.
For instance, the standardized goods and services tax (GST) places a 28 percent tax rate on entertainment events, including casinos and race courses and their related services. State-run and state-authorized lotteries are also mandated to pay a 28 percent tax rate; however, skill-based gaming is currently levied an 18 percent GST. This, according to government sources familiar with the matter, could lead “to misuse and litigation on account of the overlap between the two categories.”
One of the sources was quoted by Hindustan Times saying, “For example, rummy is a game of skill, but distribution of cards to players is nothing but chance. Secondly, 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%.”
Stakeholders seek 18% GST for skill-based online games
Roland Landers, CEO of All India Gaming Federation, said they have recommended the government to continue with the 18 percent tax rate since the Supreme Court has already ruled that online games are based on skill. Bipin Sapra, partner at EY consultancy firm, compared online gaming platform to an e-commerce site in that it “connects various players who play the game. The fee charged by the platform is in lieu of the service provided and is the only taxable value.”
“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, ” Landers said.
The GoM is expected to submit its report in November, by which time the GST Council will discuss all the issues related to gambling and “take a considered view” on the matter, according to the report’s second government source. If done correctly, the review on gambling tax may pave the way forward towards the uniform legalization of India’s online gaming industry.
In their report, titled “When should an industry regulate, ” analysts at SevenJackpots noted how an up-to-date, uniform regulation can bring transparency to India's gambling market, resulting in better consumer protection and more investments—a boon for the country’s economy.
“Transparent regulation will help the best gambling platforms prove their integrity to the public eye. Formal guidelines on online gambling will improve the business climate and bring benefits to state coffers, ” the report stated.