Online Gaming GST FAQs: Are Any Games Exempt From 28% Tax? How Will It Impact Players’ Wins?

Online Gaming GST FAQs: Are Any Games Exempt From 28% Tax? How Will It Impact Players’ Wins?

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Last week, the Goods and Services Tax (GST) Council unveiled its decision to impose a 28 per cent tax on online gaming, casinos, and horse racing, based on the full face value. Finance Minister Nirmala Sitharaman emphasised that the council does not intend to eliminate any industry, but discussions were held regarding the moral implications associated with the online gaming sector.

Sitharaman stated after the meeting, “Our objective is not to put an end to any industry; all types of businesses must operate. There were deliberations on the moral aspect that, while we do not wish to eliminate an industry, it does not mean that we provide them with more incentives than essential goods. This decision, which has been pending for the past 2-3 years, could be made today because every state actively participated.”

Under the new tax regulations, GST will be applicable to the entire value of bets placed or the total amount paid as consideration.

It is noteworthy that Sitharaman clarified that the tax on online gaming will be implemented regardless of whether the games are based on skill or luck.

She explained, “We will still align with the regulations proposed by the Ministry of Electronics and Information Technology (MeitY). An amendment will be made to Schedule III of the GST Act, including online gaming in the actionable claim list. Item number 6 of the list already includes betting, gambling, and lottery. We will also incorporate online gaming and horse racing into it. Consequently, they will be subject to a 28 per cent tax based on the full face value.”

ALSO READ: ‘May Force Gamers To Offshore Platforms’: As GST Council Levies 28% Online Gaming Tax, Here’s How The Industry Is Reacting

Now, this announcement has led to considerable confusion among the Indian gaming industry, including firms and individuals alike — especially around which games will come under the ambit of the new announcement, and what all are actually exempt.

ABP Live spoke with Sandeep Chilana, a legal expert on commercial and tax litigation, liquor and gaming laws, and the managing partner at New Delhi-based Chilana & Chilana Law Offices, to gain clarity on the GST Council’s latest announcement. 

Q: Could you please give us a bit of background on how the GST decision was taken? 

Chilana: The GST Council has taken a decision that the online gaming industry is liable to pay GST not only on the platform fee charged by companies but on the whole amount contributed by players i.e. full pot. 

GST has clarified that the whole amount paid by each player to participate in the game (contribution + platform fee) represents an ‘actionable claim’ in the nature of ‘betting’ and therefore would attract GST. 

The Revenue Secretary has also clarified that such a decision will be implemented retrospectively. 

The government has also taken a decision that such tax would be levied at 28 per cent. 

Earlier, the GST Council had formed a committee to make recommendations on the taxation of real money gaming. However, the committee was unable to reach consensus. 

Q: Could you please explain what type of online games will be affected by this GST hike? Are there any online games/esports titles that will be exempt?

Chilana: All games which are played for money whether for skill or chance will be impacted by this decision. Unfortunately, the government has failed to differentiate between a game of skill and chance. 

Games played for money not only include games of chance but other skill games such as chess tournaments, DOTA tournaments, or other fantasy games which involve skill. 

Q: How will the increase in GST from 18 per cent to 28 per cent impact online gamers in India? 

Chilana: Currently, the tax burden on the whole transaction is 18 per cent on the platform fee which is usually 10 per cent of the amount contributed by players, that is 1.8 per cent. 

However, the impact would change to 28 per cent on the whole pot. That is a substantial increase in the tax cost of the transaction and would reduce the winning amount considerably making it less lucrative. 

What will happen is that in every real-money game, the Government gets 28 per cent GST on the full pot and 30 per cent income tax on winning, which approximately comes to 50 per cent. Additionally, about 10 per cent is the gaming companies’ fee, after which, the winner is left with 40 per cent of the full pot value. 

Q: Expanding on the last question, how will this impact the operation and profitability of game developers?

Chilana: Reduced amount of winning is likely to make Indian companies less competitive. a survey amongst online games players suggests that 65 per cent were of the view that they will stop using Indian gaming companies for playing games if the change is implemented. 

Gaming companies operating from outside India would get advantages unless the tax is made applicable to such foreign companies as well. 

The reduced number of players will seriously impact profitability and future innovation and investments in the sector. 

Q: Will game prices and in-game purchases be affected by this move?

Chilana: Game licences or in-game purchases would not be directly impacted by the proposed changes. 

The change is applicable only to online games played for real money where players contribute participation fees, a major part of which becomes the winning amount for top/winning players. 

Q: How will this affect the overall Indian gaming industry on a global scale?

Chilana: Excessive taxation is likely to move online gaming companies offshore, along with their innovation and investment. 

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