Caught between a perception that online games are nothing but a rich man’s gambit that only whips up greed and promotes gambling, India’s $2 billion online gaming industry oday suffers from a serious image problem. But GoM’s recommendation to levy 28% levy on the full value of consideration or the wagering amount would make the sector unviable and significant revenue leakage.
The group of ministers (GoM) meeting today to finalise modalities on taxing casinos, online gaming and horse racing have proposed a GST tax rate hike to 28% from the current 18% on the use of chips bought in a casino and real money online skill gaming. This may seem consistent with leveling the ‘playing’ field with the legacy lottery industry, or yet another move to rationalise taxation. But there are bigger issues at play.
Caught between a perception that online games are nothing but a rich man’s gambit that only whips up greed and promotes gambling, India’s $2 billion online gaming industry that is poised to draw $6.6 billion of foreign investment by 2025, today suffers from a serious image problem. And the constitution of the GoM – where half of the 8 members – represent states that depend for whom lotteries or casinos are big money spinners – exemplifies it the best.
Ever since we created an artificial distinction between games of skill and chance and taxed lotteries at 28%, the pitch got muddied. Making games of skill a central subject but ones involving chance like lottery a part of the state’s concurrent list, the courts added to the confusion. And if that’s not enough players pay income tax to central coffers on winnings while GST remains a state issue. Horse racing of course is not considered gambling by our policymakers!
This has led to three distinct groupings. Some states like Telengana have taken the moral high ground and blanket banned everything. But has that really stopped players? Another group argues if lottery is kosher, so should skill based real money games, but both be taxed equally. Finally the fantasy league start ups, unicorns like Dream 11, Mobile Premier League brandish several court orders, including one from the apex court that says almost-sin games like casino, lottery, teen patti, blackjack, are games of chance while poker, rummy, fantasy leagues, online or otherwise, need significant intellect and skill and thus are differentiated.
That bring us to the current state of debate — what should be the requisite rate and valuation.
Historically, the gaming operator has been collecting a platform fee or gross gaming revenue (GGR) in industry speak of around 10% from participants like you and me. So, if two players are contesting with Rs 50 each in entry fees (for total pot of Rs 100), Rs 10 gets deducted as GGR. The winner gets Rs 90, though net winnings post tax is much less. Thus far, the industry has paid 12-15% service tax plus 18% GST on GGR and the winning user pays the IT department. Online gaming companies argue deposits are not revenues, can remain unutilised or withdrawn and taxes should not be levied on deposits. Making a deposit also does not “obligate” a player to consume any goods or services.
In order to purportedly bring parity between games of skill and chance and their taxes, the GoM has reportedly recommended a 55% hike in taxation for online skill gaming. (proposed 28% from18%)
More importantly, it has been reported that the GoM wants to levy GST on the full value of consideration or the wagering amount. This is a 1100% hike in tax incidence for the 20 plus crore gamers. Why? Platforms instead of absorbing it themselves as they do now, the additional 28% burden will be passed on to the users who will lose their shirt even before the game has begun. This is because, the tax obligations on wagering will far exceed the operators take rates or GGRs. It not only would make the sector unviable but will also nudging players to try out offshore illegal platforms thereby causing significant revenue leakage.
Think of an online platform as a brokerage who charges a flat brokerage fee from you to act as an intermediary to buy/sell shares. But the GoM wants to charge brokerages on the face value of shares every time there is a trade.
At current rates, around Rs 16,000 crore of GST collection is expected between FY23-25. Charging 28% on gross revenues, will impact the profitability of the gaming companies, but the eco-system will still survive. The tax coffers too will enrich. But shifting the spotlight will have ruinous implications far and wide. Similarly, the decision to impose a one time 28% tax on customers in a casino is equally misplaced. As ET has argued chips are currencies that are used for purposes other than trying one’s luck, such as ordering a drink. More importantly, can the tax man monitor or capture each transaction?
In a cacophonic federal structure like ours, let the GST collected be shared with the central pool based on player usage data and volumes. Make it simple. there are global frameworks one can look at and replicate. For example, the UK model where a central framework under the Gaming Commisoner – a quasi judicial superman armed with tech specialists, auditors who has the final word. Or the US model where there is no distinction but each state issues licence and decides.
The dice may have rolled but leave nothing to chance. Ideally legalise everything with the necessary checks and balances – advertising guidelines, age bars, marketing guidelines. For a civilization where our epics valourise rise and fall of mighty empires, over a roll of dice, are we to still allow Victorian moral codes dominate our social narratives?