An Open Letter Urges Central Authorities to Keep the GST Status Quo
A recent open letter issued by the Internet and Mobile Association of India (IAMAI) urges the Central Government and the Goods and Services Tax Council (GST Council) to keep intact the status quo of indirect tax levy of 18 percent over the gross gaming revenues (GGR) of online gaming companies preserving the tax free status of prize pools or contest entry fees (CEF).
The open letter was published in view of reports that the country’s apex GST policy body has been considering a hike of the applicable tax rate for services provided by online gaming operators to 28 percent to bring them at par with casinos, lotteries and race courses.
According to IAMAI, slumping together online gaming websites with platforms offering sports wagering and free cricket betting tips, casino gaming or other varieties of gambling by equalizing their taxation would be unfair to India’s online gaming industry and would go against the letter and the spirit of judgments by the Supreme Court.
Such rulings by the country’s Apex Court have held that online gaming is a distinct skill-based category and the provision of or the participation in online games constitutes exercising of the fundamental right of practicing free trade protected by the Union Constitution.
If someone is searching for the fastest withdrawal betting sites in India, they are looking for a vastly different gaming experience than, say, a first-person shooter game, an esports tournament or even an online fantasy sports league. The distinction between gambling and betting, on the one hand, and online skill gaming, on the other, should be understood and recognized not only by the public and the judicial institutions, but also by the country’s government and tax authorities.
IAMAI further points out that India’s online gaming sector has contributed ₹6,000 crore as GST payments over the last four years and is expected to contribute additional ₹16,000 crores in the next four years. The open letter stresses that tax contributions of such scale have been made possible because online gaming platforms use transparent and measurable payment mechanisms.
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The eventual GST hike for online gaming services to a 28 percent levy on GGR, however, will increase the taxation incidence to roughly 55 percent and will have an adverse effect, IAMAI says. Such a development will raise the cost of participation in online games for the majority of end customers driving them away from legitimate platforms and will lead to a decrease of tax collection.
Taxing prize pools at 28% GST will destroy Indian online gaming industry
Some media reports suggest that the GST Council is also planning to tax contest entry fees that form the prize pools, or the full Gross Gaming Value (GGV), at the highest GST rate slab of 28 percent. This move, if implemented, will raise the tax burden by 1,100 percent and will destroy the Indian online gaming industry, IAMAI warns.
The Internet and Mobile Association points out that the majority of jurisdictions around the world, including the UK, the US, and European Union countries tax GGR, and not GGV. If India adopts a high taxation regime over prize pools, this will force many online gaming companies to go underground to survive and taxation revenues will shrink.
Historically, the application of a similar GST regime over horse racing in the recent past proved to lead to lowering of tax collection and to a surge in black market activity. For the Fiscal Year of 2016-17, the turf clubs in Bangalore, Calcutta and Hyderabad – India’s three biggest horse racing establishments, collectively paid ₹389 crore in taxes after registering turnovers of ₹3,482 crore.
In 2017, a GST levy at 28 percent was introduced over the full face value of bets made on horse races, and the result was that the annual revenues of the three turf clubs shrank threefold to ₹1,193 crore and the total tax revenues received by the exchequer were only ₹134 crore.
In May 2021, the GST Council set up a Group of Ministers (GoM) with the task to examine GST applicability and valuation concerning online gaming, casinos, lotteries and race courses.
The GoM submitted its recommendations in May this year, but the 47th meeting of the GST Council did not reach a conclusive decision on the matter and directed the GoM to re-examine its report within a short time frame. For similar updates and news on the gaming industry, stay tuned to ReadScoops.com…
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