Govt to consider single tax rate for online gaming?

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According to two insiders privy to the matter, the government might consider levying a single tax rate for online gaming as two different rates of 18% and 28% based on the distinction between so-called games of skill and games of chance are prone to misuse and litigation on account of the overlap between the two categories.

However the final decision on this matter is pending and will be made by the GST Council, the top decision-making body on matters of the indirect tax, they said on condition of anonymity to Hindustan Times.

The GST Secretariat had recently asked the GST Council to provide clarity on the GST rate and the applicability of the levy on these services as reported by CNBCTV18. It came on the heels of a recent directive dated September 29 from the Punjab Haryana High Court (PHHC) on the matter.

The PHHC had directed the GST department to take no coercive action on an online gaming company against the demand notices until the Group of Ministers (GoM) constituted to examine the issues provides clarity. 

The council, a federal body, is headed by the Union finance minister and has representations of state finance ministers. The GST Council on May 24 constituted a group of ministers (GoM) to address issues regarding the online gaming sector for taxation purposes.

While, in the beginning, it was a seven-member ministerial panel under the chairmanship of Gujarat, the finance minister of Telangana was later added to the group as the eighth member.

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“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,” one of the people said to HT. The GoM is to determine if GST should be levied only on the amount retained by the platform or also levied on the prize money.

The problem arising out of this new development is that no one in the government or outside can truly tell as to which games are classified as chance-based and which ones can be truly be termed as games of skill.

The second person also shared that it is often difficult to ascertain whether a game is purely one of skill or chance. “For example, rummy is a game of skill, but the 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 the 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%.”

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“There is no objectively definable test or regulatory guideline or administrative forum to assess and determine if a game will be characterized as a game of skill or game of chance,” said a Niti Aayog discussion paper, quoting a report of the Sports Law and Policy Centre, a Bengaluru-based think tank focussing on sports law and policy.

Akin to lotteries, a single tax rate on online gaming is desirable to avoid litigation, the two people said to HT. The GST Council in December 2019 levied a uniform 28% GST on both state-run and state-authorized lotteries.

In the times before, state-run lotteries attracted 12% GST, while the levy on state-authorized lotteries was 28%. The lottery industry had been demanding a uniform GST rate of 12%.

This signals that there will be some changes that government has to bring in the legislation to get clarity on the matter before these decisions are implemented.

There is no unanimity amongst Indian states as to whether online games such as Rummy, Poker, Bridge, Fantasy Sports, and E-sports are games of skill or games of chance. While some southern states have put a blanket ban on them for promoting gambling, others have considered them games of skill.