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Think Change Forum discusses taxation for Indian gaming industry

To fully realise the potential of this sector, there should be a clear and consistent approach to personal taxation

In India, the online skill-based gaming sector is valued at .5 billion industry
In India, the online skill-based gaming sector is valued at $2.5 billion industry

India needs to bring income from gaming activities at par with global practices and allow costs and losses from gaming activities to be offset against the income, Think Change Forum (TCF) said. In India, the online skill-based gaming sector is valued at $2.5 billion industry with a compound annual growth rate (CAGR) of over 38% and is projected to grow to $20 billion by 2030 in terms of revenue, it said.

As per the recommendation based on the roundtable on ‘What is the right taxation approach for a sunrise sector like Online Skill-Based Gaming’?’, the gaming sector is a new age opportunity while the tax-relevant provisions are from another era namely 1961, 1972 and 1986. Therefore, the industry of 2022 and tax provisions from the 1970s are very clearly not dovetailing with each other, Rohan Shah, senior counsel, Supreme Court, said. “From a direct tax perspective, you first identify what is taxable. There are three elements here. Firstly, Section 115BB says that anything that accrues from horse racing, gambling, betting or crosswords, among others, will be taxed at a full tax rate which is 31.2 percent. Another issue is TDS under Section 194B, which is deducted upfront. And the third element is Section 58(4), which does not allow for any set-offs. There is no contemplation of any loss here since in the 1970s crosswords was not seen as an industry,” he added.

According to panel members of the roundtable, to fully realise the potential of this sector, there should be a clear and consistent approach to personal taxation, failing which the proposed budget outlay for AVGC sector promotion will be put at risk and the Government will lose thousands of crores in taxes. According to the panel, a high 30% TDS on regulated platforms is making offshore untaxed platforms that don’t deduct these taxes thrive. This makes the Government lose taxes and foreign exchange, in addition to putting players at a higher risk, it said. Experts believe that taxation is not a suitable instrument for forcing disciplined behaviour among players, which is better achieved through technological interventions.

Discussions in the public domain have talked about tax evasion to the tune of tens of thousands of crores in the industry which is not the case and stems from a lack of understanding of the core business model of the industry, Trivikraman Thampy, founder and CEO, Games24x7, stated. “Unlike gains in contests like lotteries where one competes with thousands of others at a given point of time, gains in any single online skill game are not massive because it is only between a few players. So, even if a player wins 70 percent of the games, the player will have to go out of pocket to pay the taxes. If the laws written keeping in mind crosswords and lotteries were to be implemented in online gaming, the implications would be disastrous,” he observed.

The discussion also included the need for certification for operators which will help consumers identify legal platforms and help to grow the domestic industry and enable tax revenue for the government. Moreover, the roundtable included that any technology or internet-based activity will pose challenges and a high-powered committee consisting of technology, tax and financial experts need to make a pragmatic and easy policy.

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First published on: 29-12-2022 at 11:47 IST