A deep divide among the states is threatening to make it harder for the Goods and Services Tax (GST) Council to decide on a revised tax structure for the thriving online gaming sector as it meets here on July 11. According to sources, of the eight members of the Group of Ministers (GoM), only Uttar Pradesh and West Bengal finance ministers are fully in favour of the panel’s first report that had recommended 28% GST on online gaming on the full value of the consideration without making any distinction between games of skill and chance.
Some states, including Goa and Gujarat, are understood to have sought GST levy only on platform fees charged by online gaming firms with the former seeking 18% tax and the latter 28%. Maharashtra said there should be no differentiation on the basis of the game of skill and the game of chance, and the tax rate should be the same on actionable claims of horse racing, casino and online gaming. However, it suggested suitable abatement for the purposes of determination of the taxable value of supply of actionable claim.
The GoM, in its first report in June last year, had recommended that in the case of online gaming, the activities should be taxed at 28% on the full value of the consideration, by whatever name such consideration may be called, including contest entry fee, paid by the player for participation in such games. Since GST is levied on online skill-based gaming at 18% currently on the platform fee, the tax incidence on the gaming industry will skyrocket if the proposal is implemented.
Gaming companies charge up to 20% of the contest entry amount, which is called platform fee.
Meanwhile, executives from gaming companies contend that, if the tax rate is hiked to 28% and levied on the entire consideration, then their firms may be forced to pass the extra tax burden on to the gamers, in what could undermine the fast-growing sector. A steep increase in the tax burden would mean a hike in the platform fee and reduced winning amount, said Malay Kumar Shukla, secretary of E-gaming federation, which comprises gaming companies like Games 24×7, Junglee Games, Head Digital Works.
Games of chance refer to those games which are solely based on luck and chance like betting and gambling while games of skill are those games that are primarily and substantially based on skill.
In the case of racecourses, the GoM in its first report had said that GST should continue to be levied at the rate of 28% on the full value of bets pooled in the totalisator and placed with the bookmakers. In the case of casinos, GST should be applied at the rate of 28% on the full-face value of the chips/coins purchased from the casino by a player, it had said. In the case of casinos, once GST is levied on the purchase of chips/coins (on face value), no further GST to apply to the value of bets placed in each round of betting, including those played with winnings of previous rounds, it had said.
In the GST Council meeting on June 29 last year, finance minister Nirmala Sitharaman, who is the chair of the federal body, had asked the GoM to relook at the taxation issues after the Goa government flagged some concerns about Casinos, among others.
However, consensus still eludes. Officials reckon that given the nature and sensitiveness of the matter, a political call would have to be taken on the matter of what will be the tax rate and on what base it would apply.
Goa has suggested that casinos may be taxed at 28% on gross gaming revenue (margin) and online gaming should be taxed at 18% or the rate to be decided by the Council on platform fees.
Telangana and Tamil Nadu said that if an activity constitutes betting and gambling, then it should be taxed on the full-face value at 28%. Where the activities do not constitute betting and gambling, they may be taxed according to the existing provisions, at 18% Meghalaya expressed the view that in online gaming and horse racing, the sum of money retained by the online gaming operator or the racing club is not part of the actionable claim, hence can be taxed at the rate recommended by the GST Council as the supply of services.