Online Gaming Platforms To Be Taxed Differently In India Based On Skill And Chance?

The Indian government is currently deciding how to tax the increasing number of online gaming platforms which ask for money from players. The Finance Ministry and the GST Council are still deciding whether to differentiate platforms based on skill or chance.

Online gaming, specifically mobile gaming, has been gaining popularity drastically in India. However, the nature of the gameplay and the revenue models vary for many of them. Hence, even the tax structure levied on them should be different, indicated an official.

GoM Recommended Flat Tax Rate On All Online Gaming Platforms

A Group of Ministers (GoM), chaired by Meghalaya Chief Minister Conrad Sangma, had submitted a report on GST (Goods and Services Tax) to be levied on online gaming to Finance Minister Nirmala Sitharaman. The report was submitted late last year, and its approval is still pending.

The GoM had essentially slapped a blanket GST of the highest order on all online gaming platforms. Simply put, according to the GoM, online gaming would attract a GST of 28 percent.

There were two issues with this suggestion. There was no mutual agreement on whether the tax should be levied on only the fees charged by the portal or the entire consideration, including the bet amount. Secondly, not all games are the same, and their revenue generation models and methods differ.

Games Needing Skill Would Attract Lower Tax Than Those Based On Chance?

Charging a flat 28 percent GST on the entire amount would reduce the prize money left for distribution. This may cause players to stay away from legitimate portals which deduct tax. In other words, this may encourage online gamers to switch to unlawful gaming apps that do not deduct tax.

Secondly, not all games are a "game of chance". In other words, several online gaming platforms do not ask players to bet or gamble. These platforms offer a "game of skill".

Currently, online gaming attracts 18 percent GST irrespective of the nature of the games. Moreover, the tax is levied on gross gaming revenue, the fees charged by online gaming portals.

While the government may prefer to jack up the rates to 28 percent, several states have been pitching for a lower tax rate on online games that require a skill. They claim that games of skill should not be treated on par with games of chance.

The Indian government is yet to make a final decision. It also has to offer a clear definition that helps to identify the gaming platforms for taxation. But once the distinction is finalized, games involving betting and gambling could attract a higher GST rate of 28 percent.