GST for gaming, casino and racing needs a differentiator, not a disruptor

The final word is not yet out on the GST for online gaming, casinos, and race courses.  The ministerial panel on casinos, race courses, and online gaming will meet on July 23 in Bengaluru and on July 24 in Goa to get a clear perspective on the taxation of horse racing and casinos. It is […]

The final word is not yet out on the GST for online gaming, casinos, and race courses.  The ministerial panel on casinos, race courses, and online gaming will meet on July 23 in Bengaluru and on July 24 in Goa to get a clear perspective on the taxation of horse racing and casinos. It is reliably learnt that the Bangalore Turf Club will make a presentation to the GOM on various aspects of racing and the issues of GSt related to racing. In Goa, the GOM will visit some casinos to get a first-hand feel of the business and the way it operates.

The GOM has time till August 10 to submit its final report. One must remember that serious differences had cropped up among the members and two previous meetings remained inconclusive over the rates and whether it should be applied uniformly across the three sectors—online gaming, casinos, and horse racing. 

So what happened in those two meetings? The 47th GST Council, held in Chandigarh, had given time till July 15 to the GOM on online gaming, casinos, and race courses to iron out the concerns and sticky issues and submit their reworked report.

The GOM last met virtually on July 12, under the chairmanship of Meghalaya CM Conrad Sangma, but could not conclude its report. Now, the Twitter timeline of Finance Minister Nirmala Sitharaman is full of arguments against the absurdity of clubbing everything together for valuation and tax treatment under the GST ambit. India’s political and sporting cognoscenti have said the move could have far reaching consequences on the sectors, especially online gaming that is considered a power driver for the nation’s economy.

A government which is skilled enough to differentiate the GST rates for roti and paratha is claiming not to be able to differentiate between skill-based games and pure gambling. The approach seems to be that if a part of the target segment cannot be brought up, the rest of the segment should be pulled down. At the press conference on June 30th, the FM said “Whether it is horse racing or online gaming or casinos, the common thread that the Committee highlighted is that they are part of betting and gaming… In other words, they are essentially gambling. There may be an element of skill in it or an element of chance in it. But essentially, all the three are gambling,” 

If this is the case, then India can never become a gaming superpower, a term used by none other than the country’s Prime Minister. Narendra Modi recognised the potential of the online gaming industry and said India has the potential to lead the world in the digital gaming sector.It is not gambling. The online gaming industry has emerged recently owing to technology innovation and growing smartphone & internet penetration. According to the All-India Gaming Federation, it has a potential to create around 60,000 highly skilled jobs and attract over Rs. 20,000 crores of FDI in the next few years. A KPMG report said that the Indian online gaming industry was worth Rs 13,600 crore in FY 2020–21 and is likely to reach Rs 29,000 crore by FY 2025.

Sitharaman has herself in the last Union Budget announced the setting up of the AVGC promotion task force to look at ways to build domestic capacity and also to serve the global demand in the Animation, Visual Effects, Gaming, and Comic (AVGC) sector. G (Gaming) is an important letter in the term AVGC and one that probably has the most potential of the four sectors. Now the nation expects her to move away from the tunnel vision of some officials. Once again, this is not gambling. This is no sin.

Now, it is genuinely a tough road for the group of ministers. They are stuck in limbo due to fresh differences among the members. Everyone is asking on what grounds the same norms should apply to all three categories. Some of the members said each category required a different valuation calculation mechanism, and some of the members agreed, arguing it would be wrong to put everything in the 28 percent bracket.

Some of the members have already explained how some other nations handle their GST on online gaming. What is the government saying? The chairman of the GoM is pushing the members to agree to a single value mechanism to ensure compliance and make enforcement easy.

But it is not acceptable to the industry. The GoM said online gaming be taxed at the 28 percent slab “on the full value of the consideration, including contest entry fee paid by the player for participation in such games without making a distinction between games of skill or chance.”

This puts online gaming in the highest tax slab of GST along with other goods like aerated drinks and luxury cars. And it is clear that such high taxes will kill the gaming industry. The existing tax slab for online gaming stands at 18 percent and the amount taxed is not on the full consideration of transactions. With an estimated value of $1.5 billion, the gaming industry in India is expected to be worth $5 billion in the coming years.

The new regime would charge 30% of the entry fee, plus a 115 percent surcharge.Currently, an 18 percent tax is levied on the platform fee and gross gaming revenue (GGR). It means the GST council is looking to tax not just the revenue platforms are collecting but the entire value of transactions deposited with them by the players.  If this happens, the tax burden will increase multifold.

Consider this one. The imposition of GST on GGV (gross gaming value) will result in a nearly 900 percent increase in taxes, effectively killing the emerging gaming industry. In the US, a flat tax is deducted on earnings from e-sports and online gaming, but the exact rate depends on which state you are in. 

Online gaming is usually taxed at 10 percent in most states. But 30 percent tax is imposed on any winnings through online gaming and esports winning. In the UK, a variable tax slab is applied, starting at 15 percent for the first $3.5 million earned on the GGR, and going up to 50 percent for amounts over $17.8 million earned. While winnings on gambling are tax-free in the country, tax rates for e-sports are set at 40-45 percent.

Now the situation is slightly more complicated in the EU. The revenue tax rate is set at 15-20%, while winnings are taxed at rates ranging from 15 to 50%, depending on the amount and the member state. All eyes on the Bengaluru meeting.