GST on online gambling should be viewed differently from casinos and horse racing
By Rameesh Kailasam
The GST Board and the Ministry of Finance had formed a Group of Ministers (GoM) to determine the GST rate and taxation on casinos, racetracks and online gambling, which was then reconstituted again and is expected to meet on May 2, 2022 under the leadership of the Chief Minister of Meghalaya, Conrad. Sangma.
There have also been well established decisions by various courts like Supreme Court, High Court of Rajasthan, High Court of Punjab and Haryana, High Court of Madras, High Court of Kerala, Judgments of the High Court of Karnataka in support of online games involving skill. In this context, industry bodies like Indiatech.org had sent several recommendations on the tax treatment of online games of skill and explanations on the role and control of gaming platforms in managing the amount of registration to the competition (CEA) and the component on which the GST should be made applicable. . It is relevant to note here that the amount of participation in the contest usually includes the platform fee or gross gaming revenue (GGR), which is usually between 5% and 15%, and the prize pool, which is between 85 % and 95%. In many games, the average ticket size is between Rs. 25 to 35.
The prize pool, on the other hand, is the amount that the platforms hold either by maintaining a clearly identifiable escrow account or bank account, or by holding the funds received in a segregated electronic ledger by third-party service providers/gateways. payment (PG)/wallets, etc. The winnings are then distributed to the users at the end of each game and this account becomes zero after the platforms take over the platform fees.
Under the service tax regime, online gaming was levied on the platform fee/gross gaming revenue. After GST, it is taxed under HSN code 998439 at 18% on Platform Fee/Gaming Gross Revenue (GGR) as “Other Online Content Not Elsewhere Classified” (NEC).
It is pertinent to note that the online gambling platform which is the technology platform has no rights over the amount of the prize pool. In addition, Rule 31A of the CGST Rules 2017 (“Rule 31A”) deals with the assessment of the offer of an actionable claim in lottery, betting, gambling and horse racing, so as to fall within the rigors of Rule 31A which applies, to quote that Rule, only to activities involving “a chance of winning in betting, gambling or horse racing”.
Rule 31A(3) reads: “(3) The value of the offer of an actionable claim in the form of a chance of winning in a bet, game or race of horses in a racing club must be 100% of the face value of the bet or the amount paid into the totalizer.Thus, it can be interpreted that Rule 31A applies strictly to games involving betting, gambling or horse racing, etc. Since Rule 31A uses the word “luck” before describing the activity, it is clear that the Rule does not apply to online games based on skill.
The “actionable claim other than lottery, betting and gambling” is covered by entry 6 of schedule III of the CGST Act 2017. The prize pool money is a claim actionable and is therefore exempt from GST tax. Therefore, only gross gaming revenue or platform fees should continue to be considered the value of the offer under current practice. Also, if there are other revenue formats/models followed by platforms such as entry fee, subscription fee, game revenue, etc., GST should be applicable on the amount received by the platform for the provision of its services.
The GoM should ideally take a positive view and recommend maintaining the current practice of considering platform/GGR fees as the value of the offer. Since online skill games are not gambling/betting/betting, clarification should be issued to resolve disputes and provide relief to the industry.
It is important to plug potential revenue leakages by stopping business moving to gray markets and discouraging non-compliance. International Learnings reports that all major markets tax GGR at a rate of between 7 and 20%. Countries that started taxing the kitty instead of the GGR have now reverted to taxing only the GGR.
There is a potential that needs to be rightly tapped for India to see a number of startups emerging from this sector globally. It is therefore necessary that games with a predominance of skill are ideally taxed at 18% on the royalty of the platform. The online gambling industry in India has exploded over the past few years with the emergence of over a thousand startups and has seen tremendous positive economic impact.
(The author is the CEO of Indiatech. The opinions expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproduction of this content without permission is prohibited)