LKS releases GoM report analysis highlighting need of fair taxation framework for online gaming

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Popular Indian law firm Lakshmikumaran & Sridharan (LKS) Attorneys has released a report of analysis of the recommendations by the Group of Ministers (GoM) on the GST rates in the country. The GST council meeting is set to take place soon and is expected to finalize the tax rate on all online games.

The report submitted by GoM states that no distinction shall be made for levying GST rate on casinos, racecourses, online gaming, and lottery, and that it should be taxed at a 28% rate. Further, in case of online games, the tax shall be levied on the full value of consideration.

Analysis by LKS believes that a number of conclusion drawn by the GoM do not align with its objective. Activities like lottery, betting, gambling are fundamentally different from online games. One amounts to games of chance, while the other amounts to games of skill.

A good example being the recent conclusion by Karnataka High Court who ruled that the games provided on Gameskraft platform are games of skill and so not amount to gambling, hence quashing the show cause notice demanding GST to be charged at 28%.

Furthermore, the firm noted that international practices regarding taxation on online gaming is also moving towards taxation on GGR (Gross Gaming Revenue) model with developed nations capping tax rate between 15%-20%. Therefore, the GoM report concluding taxation on entry amount is contradictory to international practice.

The report also reflects scepticism as the amendments to online gaming rules were made after the GoM report was prepared. Prior to the new amendments, there was not much clarity regarding games of skill or chance.

Discussion and final stance on tax rate for online games considering the clarity by online gaming rules will be important as it will help in curbing any debate regarding what is game of skill or chance and make a sound decision.

Ensure that the GST position is aligned, says report

The report said, “It is important that the GST Council considers the recent legislative developments to ensure that the GST position is aligned with the established jurisprudence and central legislations on the said matter.”

Speaking on the release of the report, executive partner at LKS, L. Badri Narayanan said, “As per reports, the size of India’s gaming market is estimated at around US$ 2.6 billion in FY22. This is expected to reach US$ 8.6 billion by FY27.”

“Realisation of this potential is subject to a fair and certain taxation framework. The GST Council should consider the factual legal position, expectations of the industry and implement global best practices to provide a conducive taxation regime and not levy heavy 28% GST on the total value of consideration,” he further added.