Centre and state GST officers are working with online gaming sector experts to define ‘games of skill’ and ‘games of chance’ with a view to design different taxation structures for them, sources said.
The vexed issue of levying Goods and Services Tax (GST) on online games has been hanging fire for over a year now with many states pitching for a lower tax rate on those online games which require skill. They are of the opinion that games of skill should not be treated at par with games of chance.
The absence of a clear definition often leads to tax notices being sent to online game portals and subsequent litigations.
According to sources, the GST Council’s Law Committee, which met in Bengaluru on Saturday, discussed the issues concerning definition for ‘games of skill’ and ‘games of chance’ with technical domain experts.
As all states are not part of the law committee, the draft report on definition would be shared with all states for their views.
Sources further said the GoM (Group of Ministers) wants to present a report to the Council, which is legally tenable and cannot be challenged in the courts. The panel of ministers will consult all stakeholders before finalising its report.
Only after a definition is finalised, a call would be taken on the tax rates to be levied and also on whether it should be levied on gross gaming revenue or deposits by gamers, sources told PTI.
The meeting of the GST Council, chaired by the Union finance minister and comprising her state counterparts, is likely to be held by the end of December after the conclusion of state elections in Gujarat and Himachal Pradesh to consider the report of the GoM on taxation of online gaming, casinos and horse racing.
Earlier in June, the Group of Ministers, under Meghalaya chief minister Conrad Sangma, had suggested the GST Council that the online gaming sector should be taxed at 28 per cent. The GST Council, however, asked the GoM to further deliberate on the taxation of online gaming, along with casinos.
Industry has been demanding that games of skill should continue to be taxed at a lower rate as a higher tax rate would substantially reduce the prize money.
Currently, a 28 per cent GST is levied on ‘games of chance’, which involves some form of betting/gambling, while skill gaming sector pays 18 per cent GST. The tax is levied on gross gaming revenue, which is the fees charged by online gaming portals. Charging 28 per cent GST on the entire amount, which a player deposits for a game for both categories of online game, would reduce the prize money left for distribution and drive away players from legitimate tax deducting portals, sector experts say.
This may also encourage online gamers towards unlawful portals that do not deduct tax, experts added.
Online gaming witnessed a spurt during the time of Covid lockdown with the number of users in India rising substantially. As per a KPMG report, the online gaming sector would grow to Rs 29,000 crore by 2024-25, from Rs 13,600 crore in 2021.
AMRG & Associates Senior Partner Rajat Mohan said industry expects policy-level clarity on all the critical aspects of the gaming sector, which includes chargeability of tax on the un-played bets, valuation of services, applicable rate of tax on game of skill/ chance, point of taxation for gaming services, applicability of tax on bonus/cash-backs etc.
“Policy level clarity from the GST Council is the need of the hour to fuel growth in the entire online gaming sector,” Mohan added.
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