‘Tax games of skill differently from games of chance’

The tech industry association, which counts Dream11 and MPL as its members, said that higher tax rates will adversely impact the growth of the industry.

In a letter to Finance Minister Nirmala Sitharaman ahead of the Union Budget 2022-23, IndiaTech has urged for the tax regarding goods and services to be levied only to the subscription charges, and not for the prize pool reserved for the prize winners. Economic Times has reviewed parts of the letter. IndiaTech, a grouping whose members include online gaming unicorns such as Dream11 and Mobile Premier League, pointed out that Rule 31A of the CGST Rules 2017, applying to lottery, betting, gambling, and horse racing should not apply to the games of skill. As per Rule 31A, every transaction amount, including the winning prize, is currently being taxed.

The GST Council, the apex decision-making body on matters of indirect taxes, consisting of a group of ministers, sat in a meeting which discussed the taxation relating to the gaming sector of the country. According to two sources, there was a suggestion of capping a blanket 28% GST and club the two categories of online games of chance and that of skill. Currently, most gaming organisations pay 18% GST as platform fees. IndiaTech in its letter laid down recommendations it would like the Finance Ministry to consider while drafting the framework for online gaming. The GoM, tasked for the same, has not yet submitted its recommendations to the GST Council.

The economics must be hurting these organisations which drew out the urge from IndiaTech to differentiate the two categories and suggested for the tax to be levied on the revenue alone. For instance, four people log in to a gaming site and play Ludo with a deposit of Rs 100 each. One of the players wins the game and with it, a prize of Rs 380 as the winning amount. The remainder Rs 20 is the gaming company’s commission. The dilemma arises regarding the GST to be paid on Rs 20 or Rs 400.