The Former Chairperson of Central Board of Indirect Taxes and Customs (CBIC) John Joseph expressed his views on the GST rate for online games recently, saying that there is necessity for the GST Council and CBIC to differentiate between skill-based and chance-based online games before coming up with a new tax rate.
“It would be important to maintain a distinction between online games which are skill preponderant and games that are in the nature of betting, wagering and gambling. The GST law already provides for taxing actionable claims in betting and gambling,” John Joseph, former Member (Policy) at the CBIC.
The Former CBIC Chairperson said that it would be an act of folly to extend the application of the same concept to services offered by online gaming intermediaries, which are constitutionally protected
The issue of indirect taxation of online gaming has been hanging fire for a couple of years. The next GST Council meeting is expected to be held soon and finalize the tax rate on online gaming after reviewing the Group of Ministers (GoM) report which suggested 28% tax rate on contest entry amount (CEA).
The GST Council had, in May 2021, set up a Group of Ministers (GoM) on casinos, race courses and online gaming. The GoM had reportedly agreed on a 28 percent tax, irrespective of whether it was a game of skill or chance. There has also been a lack of consensus on whether GST should be levied only on the fees charged by the portal or the entire consideration, including the bet amount.
On the question of why the issue is not solved yet John Joseph commented that the definition and the associated rules brought out by the Ministry of Electronics and Information Technology (MeitY) are part of an important step in encouraging the gaming ecosystem in the country. The definition is a very significant move as it confers legal status on online gaming and recognises the industry from the regulator’s perspective. In fact, it is a progressive move that co-regulation has been proposed in the rules, given it is a very innovative and emerging sector.
He added that the GST conundrum continues to play out and a blanket approach of viewing all online games to be of the same nature is the crux of this problem. It is essential to unpack the different kinds of online games and identify that some of them do not involve any element of betting or gambling or wagering. Once such a distinction is made, the question of imposition of GST and at what rates can be deliberated in a more rational manner
Johns Joseph suggested that moreover, the basis for taxing online games of skill should only be the platform fee or the gross gaming revenue, whereas for betting, gambling and wagering-related games, the entire prize pool should be taxed.
He further commented that instead of the government defining and distinguishing every game as to a game of skill or a game of chance, it should enlist the industry in this effort. Online skill gaming is a legitimate business, and it must be effectively reflected across all measures, such as taxation, intermediary status etc. Support and growth of this sunrise sector will enhance transparent revenue collection and strengthen investor confidence,” Joseph said. Accordingly, a calibrated reassessment by the GoM/ GST Council will go a long way in ensuring the well-being of the industry
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