"Goods and Services Tax Council to Reconsider 28% Tax on Online Gaming Amid Industry Concerns"

"Industry Voices Concerns Over 28% Tax, Calls for Differentiation Between Skill-based and Gambling Games"

Finance Minister Nirmala Sitharaman-led Goods and Services Tax Council is set to convene on Wednesday to revisit the taxation rules for online gaming. The council's primary focus will be to provide clarity on the definition of online gaming and determine the applicability of the 28% tax rate on the sector.

During the previous meeting on July 11, the council had decided to impose a 28% GST on online gaming, horse racing, and casinos, based on their full value. However, the specific classification of online games as either skill-based or chance-based remains a point of contention. The meeting will be conducted through video conferencing, led by FM Sitharaman.

Challenges in Defining Online Gaming for Taxation

One of the key issues the GST Council aims to address is the classification of online gaming for taxation purposes. This classification will determine whether games of skill or games of chance would be subject to the 28% tax rate. The gaming industry has been seeking clarity on this matter to understand how the tax will impact different segments of the sector.

Industry Concerns Over 28% Taxation

The imposition of a 28% GST on online gaming has sparked concerns within the industry. Experts argue that there should be a clear distinction between skill-based games and games based on betting, wagering, and gambling. They suggest that a lower tax rate of 18% would be more reasonable and conducive to the growth of the online gaming sector, including startups in this domain.

Impact on Skill Gaming vs. Gambling

Roma Priya, founder of Burgeon Law, a legal firm focused on startups, has expressed concerns over treating online skill gaming as equivalent to gambling due to the high tax rate. This approach, according to Priya, disregards legal precedents and could adversely affect customers, leading to reduced playable value. She believes that such taxation might hinder the overall growth of the industry.

Negative Impact on the Industry

Industry professionals, like Suman Bannerjee, CIO of US-based hedge fund Hedonova, highlight that the decision to impose a 28% tax on online gaming will likely have negative consequences on the sector. They argue that such a high tax rate might stifle innovation and growth within the industry, potentially limiting its full potential.

Hopes for Relief and Differentiation

Sanjay Chhabria, Director of Indirect Tax at Nexdigm, views the council's reconsideration as a positive development. However, he suggests that a complete rollback of the 28% tax might be unlikely. Instead, Chhabria encourages industry players to seize this opportunity to advocate for a reduced GST rate and the differentiation between games of skill and games of chance. He also suggests a shift in valuation mechanisms, advocating for gross gaming revenue as an alternative to the value of bets.

Conclusion

The upcoming GST Council meeting presents an opportunity for the gaming industry to address concerns over the 28% tax rate on online gaming. As stakeholders seek clarity on the tax implications and distinctions between different types of games, the outcome of the meeting may play a crucial role in shaping the future of the Indian online gaming ecosystem.

Also Read: