GST Council may define online gaming for taxation clarity

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According to a senior government official, the upcoming GST Council meeting is likely to discuss the Group of Ministers’ (GoM) report and decide on the tax rate for online gaming along with considering defining it.

“A clarification in the tax law will be enough. Definition is important for taxability. A distinction will have to be made for online gaming, games of chance and games of skill. It’s a very nuanced distinction. We need to lay down definitions properly for online gaming,” the official said to Moneycontrol.

The report submitted by the GoM suggests a GST rate of 28% on the contest entry amount (CEA) without differentiating between games of skill or chance. Meanwhile, the GST Council was not able to discuss the report in its previous meeting.

While the industry does not have a problem with the 28% GST rate, they suggest it should be levied on the gross gaming revenue (GGR) instead of CEA. Industry bodies and law firms have also urged the government to differentiate between games of skill and chance and levy tax on GGR. The official also said that the question will be whether online gaming is defined as an actionable claim or supply of service.

“Defining it as an actionable claim will make it ‘goods’, which means the entire value, including winnings, will come under GST. If it is defined as supply of service, it will be on face value, excluding winnings,” he said.

A claim to any debt qualifies as an actionable claim under the GST Act. According to the official, to exclude winnings from GST, the law must classify online gaming as a supply of service. According to the Supreme Court it is an actionable claim. The GST Council will be presented with the legal position, which is included in the GoM report.

“We have to take a call on how online gaming will be defined. If it is termed as part of actionable goods, it will be very challenging for the industry because winnings come from the entry fee. So we have to define it properly,” he added.

Players usually pay a small fee to participate in online games which is added to the prize pool. The company takes a cut as commission and the rest is distributed as prize. As present, the online gaming companies have to pay 18% GST on the commission.