Various law firms representing prominent online gaming companies recently wrote to the Prime Minister’s Office (PMO), requesting the GST Council to maintain the current GST rate on online gaming.
The GST Council is expected to meet in mid-June and decide the rate of taxation. The report submitted by the GoM recommended 28% rate on all types of online gaming. As of now, the skill-based games are taxed at 18% while chance-based ones at 28%.
The Bombay High Court has also ruled that online gaming companies should be subjected to a tax rate of 18% as per the GST Act. Same rate of taxation will violate the equality doctrine given in Article 14 of the Constitution. Even the Supreme Court has ruled that games of skill should not be treated in the same manner as games of chance.
The GoM, in its report, has recommended the GST rate of 28% on the entry amount. Though the industry is in favour of that rate, they suggest that it should be levied on the Gross Gaming Revenue (GGR) and not on the entry amount. A tax rate of 28% on entry amount will reduce the chances of survival of new gaming startups according to the law firms.
Abhishek Malhotra, from TMT Law Practices, said, “Most of the 900 gaming ventures in India are at a very early stage and rarely clock profits. The imposition of unsustainable taxation liabilities will dry up the revenues for these companies, lead to domination of few legacy firms, and create huge entry barriers for startups to emerge in the sector.”
“This will kill innovation in the sector. Also, penalizing the industry with high tax rates will send the wrong message to global investors and deter FDI as it will be perceived as a lack of support from the government,” Malhotra added.
The law firms also stated that the 28% GST rate on lottery, betting, gambling, and horse racing is levied as they come under Rule 31A of the CGST Rules, 2018. Since skill games are not covered under this rule, the same tax rate should not be applied to them.
India is already experiencing a rapid growth in the online gaming sector. According to a recent joint report by FICCI and EY, the online gaming sector will reach a size of Rs 23,100 crore by 2025 at a CAGR of 20%.