Tax on online gaming: What the GST Council’s decision says, its implications

GS Paper 3

Syllabus: Issues related to the Indian economy

 

Source: IE

  

Context: The Goods and Services Tax (GST) Council, in its 50th meeting, decided to levy a uniform 28% tax on full face value for online gaming, casinos and horse racing.

 

Decision to levy 28% uniform tax on online gaming:

• Earlier, the ministerial panel had discussed the option of levying tax on gross gaming revenue or platform fee – the charge paid to avail the gaming services, but this did not find favour.
• The uniform levy of 28% tax will be applicable on –
  • The face value of the chips purchased in the case of casinos,
  • The full value of the bets placed with the bookmaker/totalisator in the case of horse racing, and
  • The full value of the bets placed in the case of online gaming.
• The government will bring in amendments to the GST-related laws to include online gaming and horse racing as taxable actionable claims – goods under the CGST Act, 2017.
• So far, lottery, betting, and gambling were classified as actionable claims.

 

How will the tax work in real life?

• At present, most gaming companies were paying a tax of 18% applicable on the platform fees.
  • Let’s assume that the platform fee is 10%. So, for every Rs 100 deposited in the game, the platform makes Rs 10 and 18% GST on Rs 10 means that effectively, on every Rs 100, the GST is Rs 1.8.
• Under the new structure, a GST of 28% will be applicable on the entire face value of the bet or the consideration paid, and not the platform fee.
  • Meaning that for every Rs 100 deposited, the GST on it will be Rs 28 – an increase of around 15.6 times.

 

How big is the online gaming market in India?

• The industry grew at a CAGR of 38% between 2017-2020, as opposed to 8% in China and 10% in the US.
• It is expected to grow at a CAGR of 15% to reach Rs 153 billion in revenue by 2024.
• India’s percentage of new paying users (NPUs) in gaming has been the fastest-growing in the world.
• Transaction-based games’ revenues grew 26% in India, with the number of paying gamers increasing by 17% from 80 million in 2020 to 95 million in 2021.

  

Who gets impacted?

• Online gaming is perhaps the only segment of the internet economy that has multiple highly profitable companies.
  • For example, Dream11 had a net profit of Rs 143 cr on revenues of Rs 3,841 crore in FY22.
• The decision has been applied indiscriminately to gaming and gambling platforms.
  • This includes companies that have spent years in lobbying efforts to create a distinction between a game of skill and a game of chance/gambling platforms.

 

How have online gaming companies reacted?

• The government’s move was “extremely unfortunate” as it will lead to “a nearly 1000% increase in taxation.”
• The GST Council’s decision is “unconstitutional, irrational, and egregious” and will wipe out the entire Indian gaming industry and lead to lakhs of job losses.
• The only people benefitting from this will be anti-national illegal offshore platforms.

 

The government’s intention:

• The moral question: The industry can’t be encouraged to such an extent over essential goods and services.
• Gaming a speculative and addictive activity:
  • Every week there is a story of suicides because of debts incurred due to online gaming.
  • The addiction has mainly impacted children and teenagers and along with higher taxes, the government needed to put in restrictions on the basis of age, income etc.

 

About Goods and Services Tax (GST): 

• It is an indirect tax (not directly paid by customers to the government) that came into effect on July 1, 2017, as a result of the 101st Amendment to the Indian Constitution.
• It is imposed on both manufacturers and sellers of goods, as well as suppliers of services.
• For tax collection, it is divided into five tax slabs – 0%, 5%, 12%, 18%, and 28%.

 

About GST Council:

• It is an apex committee to modify, reconciles or make recommendations to the Union and the States on GST, like the goods and services that may be subjected or exempted from GST, model GST laws, etc.
• Article 279A of the Indian Constitution empowers the President of India to constitute a joint forum of the Centre and States called the GST Council.

 

Insta Links:

Regulating Online Gaming

 

Prelims Links: UPSC 2017