Industry body recommends GST should only be applied on platform fee of skill-based games

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Real Money Gaming as a segment is yet to see a national uniform framework with set regulations despite demands from the stakeholders to bring in the same. The fledgling yet fast-moving online gaming sector is getting fortified every day with new recommendations and bills to regulate, sustain and protect it., an industry body representing tech start-ups, has recommended to the GoM (panel of State ministers) constituted by the GST council that GST should only be levied on the platform fee charged by online skill-based games and not on the total prize pool money.

As a norm, in real-money games, players are required to pay an entry fee in order to enter a gaming tournament and the total amount collected in this process is called the prize pool money. This pooled amount is later distributed among the players as prize money and the company earns a percentage (4-20 percent) on this amount as a platform fee.

“Suitable clarification should be issued that Rule 31A is not intended to cover games of skill and therefore is not applicable to any form of online gaming where there is a preponderance of skill over chance (thereby covering online fantasy sports as well as online skill-based casual games and sports),” the industry body demanded.

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Different companies have different models of holding the prize pool money. In some cases, the amount is received and held by a third party on behalf of the players and then this third party distributes the amount to winners as per the rules of the game. In other cases, the third party involved is actually a financial service provider like a bank or digital wallet which facilitates the transactions and charges a commission for it.

“It is pertinent to note that the technology platform owner has no right, title, or interest over the prize pool amount,” Indiatech told BusinessLine.

This distinction is critical because in the cases of lottery, betting, gambling, and horse racing, “100 percent of the face value of the bet or amount paid into the totalisator” is considered for GST.

The industry body highlighted that in cases where the gaming companies’ revenue model includes a subscription fee, in-game revenues, etc, GST should be applicable on only the amount received by the platform. They have also recommended that skill-based games should be taxed at 18 percent on the platform fee, as higher tax rates can impact the industry’s growth.

Earlier in the year, the All India Gaming Federation(AIGF) and consulting firm EY also published their recommendations on the GST rate for online gaming in a report titled ‘Online Gaming in India – The GST Conundrum’.

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The joint report had clearly cautioned that charging GST for the entire stake value can make the businesses suffer to a point of shutting down. While most industry players have a platform fee, in the range of 4 percent to 20 percent, any attempt to levy GST on the entire stake value will lead to unviability of the business model and would force closure of businesses,” the joint report noted. 

The report had also suggested that GST on the online gaming sector should be 18 percent.