.svg)
Body
Indian state ministers responsible for taxation are closing in on a 28 percent goods and services tax (GST) on online gaming turnover, a worst case scenario for the industry that may trigger legal action.
After months of delays, a majority of state finance ministers have indicated support for taxing turnover instead of revenue, according to a report on India’s Business Today website.
The Group of Ministers (GoM) meeting on Tuesday (November 22) determined by consensus that the full 28 percent rate should apply to online gaming, up from 18 percent, and as well as to casinos and horseracing, it said.
Adoption of the maximum GST rate for online gaming became a likely outcome months ago when it was clear that industry lobbying had failed to make inroads among often hostile state governments.
Instead, the gaming industry has focused on the potentially crippling scenario of a tax on turnover rather than gross gaming revenue, or income after deduction of winnings.
India’s Financial Express newspaper today quoted West Bengal state finance minister Chandrima Bhattacharya as saying that “all the [participating] states have reiterated their earlier stance” supporting a 28 percent rate on turnover.
However, citing unnamed government sources, Business Today reported on Tuesday that the GoM is divided over tax on turnover, and is likely to issue majority and minority opinions on the taxation mechanism.
Vidushpat Singhania, a New Delhi-based managing partner of the Krida Legal law firm, said the industry “should be able to cope with the 28 percent GST”.
“However, if the incidence of tax is on turnover rather than gross gaming revenue, the basis of arriving at such an understanding will need to be determined,” he told VIXIO GamblingCompliance.
Singhania said the legally established distinction between skill gaming and chance gaming meant that “actionable claims”, or winnings, in skill gaming contexts should be exempt from the GST.
This is because the GST law denies exemptions to “lottery, betting and gambling”, with gambling interpreted by the courts as chance gaming, not skill gaming.
“Thus, even if the GST Group of Ministers recommends a particular incidence of taxation, it would have to be within the GST laws and cannot go beyond,” Singhania said.
“If any tax is sought to be imposed which goes beyond the existing provisions, the industry is going to challenge it in the courts.”
The GoM appears to have become aware of the possibility of a legal challenge on this basis, taking legal advice in its previous meeting in September on whether “actionable claim” includes skill game winnings.
The Financial Express reported today that the GST Council could attempt to dispose of any industry challenge by categorising winnings as “services” instead of exempted activity.
Mumbai-based Ranjana Adhikari, a partner in the IndusLaw firm’s Media, Entertainment and Gaming practice, told VIXIO that contradictory media reports on the GoM meeting can only be resolved by a formal announcement.
In the meantime, regardless of the scope, a “28 percent rate will undoubtedly hurt the sunrise industry of online skill gaming and will add to its current woe of regulatory uncertainty”.
Taxation on turnover is one of the two biggest obstacles for the online gaming industry in India as it emerges from the pandemic with solid growth metrics.
The other is state government defiance of Supreme Court and high court rulings that favour online skill gaming, with a number of governments re-introducing punitive legislation.
