A Joint Statement by 90 Percent of Indian Online Skill Gaming Market against GST Levy on GGV
While waiting for the Goods and Services Tax Council to finalize its decision on pending changes to the GST levy rates and valuation rules for online gaming, casinos and race courses, India’s three major gaming industry bodies, which collectively represent more than 90 percent of the country’s online skill gaming market, came up with a joint statement warning that a decision to levy GST over the full Gross Gaming Value (GGV) would have “catastrophic” consequences affecting the sector, the government’s tax collection, and society.
As per the statement by the All India Gaming Federation (AIGF), the E-Gaming Federation (EGF), and the Federation of Indian Fantasy Sports (FIFS), the proposal submitted by the special Group of Ministers (GoM) that had been mandated to consider an update to the GST structure relating to the sector is not only a “conflict with international best practices but also violative of the principles of GST.”
The eight-member GoM was set up in May 2021 under the chairmanship of Meghalaya Chief Minister Conrad K. Sangma and submitted its recommendations report to the GST Council in May this year.
Even though the contents of the report was not made public, numerous media publications indicate that the GoM has recommended a GST regime that makes no differentiation between skill-based gaming and games of chance, online betting and gambling platforms, offline casinos and race courses.
Reportedly, the proposal suggests a uniform levy at the highest GST rate slab of 28 percent on all gaming varieties which is to be applied over the whole GGV, i.e. the full face value of transactions or bets. Currently, skill gaming platforms charge 18 percent GST over their Gross Gaming Revenue (GGR), i.e. their rake fees or the trade margin they keep for providing their services.
As per the GoM recommendations, all online gaming activities are to be levied with GST at 28 percent over the whole value of the consideration, regardless of the nature of such consideration, including contest entry fees, with no discrimination between a game of chess and online cricket betting activities.
For casinos, the 28 percent tax is to be applicable to the whole value of the initial purchase of chips or coins, and not on each round of betting, including if wagering the winnings from a previous round.
An Absurd and Devastating Blow to India’s Online Gaming Sector
The GST hike proposal by the Conrad Sangma-led GoM was immediately met with opposition by various stakeholders. Even though the suggestion to raise the rate from 18 to 28 percent encountered little to no negative reactions, the idea to charge the full GGV was defined as “absurd” by analysts and a “devastating” blow to India’s online gaming sector by the country’s major industry bodies.
With the number of desi online players increasing by 8 percent from 36 crore in 2020 to 39 crore in 2021, the size of the Indian online gaming market is expected to reach $1.54 billion in 2022 and grow further to $5 billion by 2025.
However, these projections might get squashed as the sector might sustain a permanent and irreparable damage if the proposed GST regime is indeed implemented. Gaming platforms will have no other practical way around than to pass the burden of the 28 percent GST over the full GGV to the players and drastically lower the prize pools on games.
As AIGF, EGF and FIFS point out, such a development will drive players away from legitimate gaming platforms that pay taxes. Gamers will instead start searching for higher prize offers at offshore platforms, illegal sites and the black market where no player protection is present. As a result, the public will be exposed to risks, and tax revenues and foreign direct investments (FDI) will shrink.
A recent analysis by Jay Santa, a Mumbai-based lawyer specialized in technology and gaming matters, calls the proposed GST valuation methodology an “absurd”. The author compares the distinction between GGV and GGR to the realities of currency exchange, where forex agents pay GST over the commission they charge, and not on the entire value of the currency exchange transaction.
“The GoM’s proposal to tax the entire contest value, which is an actionable claim not just defies logic but is also fraught with technical and legal difficulties, which may be susceptible to litigation and protracted court battles even if the centre makes amendments to the GST Act and Rules,” Jay Santa writes.
