‘Tax Games of Skill Differently from Games of Chance’

India Tech, an industry association representing consumer internet startups, has urged the government to tax games of skill differently from games of chance.

In a letter to finance minister Nirmala Sitharaman ahead of the Union Budget, India Tech has proposed that Goods and Services Tax (GST) be levied only on the amount received by the platform for providing its services and not on the prize pool kept for distribution among the players. ET has reviewed parts of the letter.

IndiaTech, a grouping whose members include online gaming unicorns such as Dreamll and Mobile Premier League, has requested the finance minister to ensure that Rule 31A of the CGST Rules 2017 – which apply to lottery, betting, gambling, and horse racing – will not apply to games of skill. As per Rule31A, the entire transaction value – which includes the winning amount – is taxed.

The GST Council – the apex decision-making body on matters of indirect taxes – constituted a group of ministers (GoM) last year to address issues related to the online gaming sector for the purpose of taxation. The GoM was tasked to come up with recommendations on the tax rate for online gaming as well as address whether GST is applicable on the total transaction value, which include the prize money, or the net commissions (revenues) that accrue to gaming firms. According to two people in the know, there was a view within the group to recommend a blanket 28% GST and club online games of chance and those of skill.

Most gaming companies pay 18% GST currently as platform fees. IndiaTech in its letter recommended that this should become a norm for platforms offering games of skill.

The GoM has not yet submitted its recommendations to the GST Council.

IndiaTech urged the government to distinguish between the two categories and proposed that the online gaming industry pay GST only on net commissions (revenues).

For instance, four people log in to a gaming site and play Ludo by depositing Rs100 each. One of the four wins the game and receives Rs380 as the winning amount. The balance – Rs20 – is the gaming company’s commission. Currently the question is whether GST is payable on Rs20 or Rs400.

“The coercive action taken by the authorities was addressed by the Punjab and Haryana High Court to address such actions till the final decision of the group of ministers formed for gaming industry is made public. As the industry waits for the decision, it is expected that the Budget will proved the required sigh of relief to the online gaming platforms,” said Abhishek Rastogi, partner at Khaitan & Co. who argued for online gaming platforms before the high courts. S-ET

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