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5 years of GST: Real Money Gaming at cross roads

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As per a BCG-Sequoia report released last December, mobile gaming in India is expected to triple to a $5Bn+ market opportunity by 2025. Gaming is currently a $1.8Bn sunrise sector in India. Between 2017-20, the Indian gaming market grew at 38% CAGR compared to 10% and 8% in USA and China respectively.

The BCG report estimates that 46% of the Indian population has access to the internet and 22% of the population plays at least one mobile game. While the BCG Report is primarily on gaming, the role of real money games like Poker, Rummy, Fantasy Sports cannot be discounted.

With proliferation of internet in past 5+ years, the gaming sector including the real money gaming industry has grown mutlifold.  The sector so far has registered 3 unicorns. While so, the sunrise sector is now at crossroads with crucial decisions on GST expected soon.

Ever since the implementation of GST, there has been a lacunae on the applicability of GST to various skill and chance games. Sometimes the discussion is about the valuation, sometimes the issue is about the slabs.

The valuation of supplies in the casino and gaming industry has been a contentious issue. In many instances, the operators are compelled to pay 28% GST on entire bet amounts while commission or processing charges are the only amounts they are finally entitled to.

In one case before Punjab and Haryana HC, the GST authorities had sought payment of GST calculated on the full amount of wager instead of commission or processing charges.

In December 2020, the Maharashtra AAR vide order dated 15 December 2020 held that online gaming falls under the category of Online Database and Retrieval (‘OIDAR’) service under GST and attracts GST at 18% of the supplies. The present position is skill games are taxed at 18% while games of chance are taxed at 28%.

Last year, Justice M. Nagaprassana of the Karnataka High Court in a detailed and landmark judgment ruled that the Bangalore and Mysore Turf Clubs hold bets made by punters in a totalisator in trust and earn only commission out of the pooled money, while distributing bulk of the monies collected as prize.

It further observed that turf club is not engaged in the activity of gambling or betting themselves but is merely facilitating betting among punters and consequently struck down Rule 31A(3) of the CGST Rules, which imposed 28% GST on the face value of the bets placed in a totalisator in a race club, rather than on commission. The decision was hailed by the gaming industry and was likely to support the claims of online skill-based gaming industry in future litigation. An appeal against this decision by the Central Government is currently pending.

The GST Council in its 37th and 38th meeting in the year 2019 extensively deliberated crucial GST issues of categorizing and determining the valuation of supplies made by the online gaming industry, including casinos and race-courses.

Thereafter, the council contemplated to setup the GoM to exclusively examine these industry issues on GST rate along with value on which GST shall be levied.

Consequently after much delays, a GoM was set up in May 2021. The GoM report was delayed due to various exits of the nominated members. The same was reconstituted in February 2022 which met twice in May 2022. The present GoM headed by Conrad Sangma submitted the report in June which was discussed in the last GST Council meeting.

The GST Council on last Wednesday deferred its decision on levying a 28% tax on casinos, online gaming, horse racing and lottery pending more consultations with stakeholders.

Treating skill games on par with gambling can  imped the sunrise sector and a cautious decision must be taken on the taxation aspects. Global experiences say high taxation often led to operators withdrawing from markets and players approaching illegal platforms.

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