Says increase in GST will adversely impact growth of this sunrise sector

Leading industry body, Internet and Mobile Association of India (IAMAI), has shot off letters to the Finance Ministry as well as the GST Council, urging that only Gross Gaming Revenues (GGR) should be considered for levying GST, and that the rate should not be hiked for the online skill gaming sector. It has added that any increase in GST, which is currently at 18 per cent bracket, will adversely impact the growth of this sunrise sector.

This submission comes at a time when a Group of Ministers recently arrived at a consensus that a flat 28 per cent GST rate should be levied on online gaming, besides casinos and race courses . 

In its submission sent to Ministry officials and GST Council members, a copy of which was seen by BusinessLine, IAMAI stressed that online games of skills are inherently different from games of chance, and that the skill-based gaming industry does not constitute to gambling.

Online games of skills include e-sports, fantasy games, rummy, poker or chess, and are either free to participate or involve real money in the form of a platform fee. The gaming companies charge a platform fee termed as Gross Gaming Revenue (GGR), which is collected and retained by the operator for consideration of its services.

In its submission, IAMAI has stressed that the operators currently collect a specific amount as ‘platform fees’, which is their only source of incomes and, thus, is taxable under GST and attracts a levy of 18 per cent. It added that since the prize pool does not constitute a source of income for the platforms it should not be considered for levying GST.

Contribution towards the prize pool is collected from all players is held in trust/escrow in fiduciary capacity and then distributed to the winners’ bank accounts, it stated. Pointing to practices followed by international market, IAMAI said this method of taxing the GGR rather than the entire stake (GGR + prize pool) has been accepted as standard practice.

“The current practice of adopting GGR as the valuation for the concerned supplies made by the online gaming operators should be continued and clarity be provided on the same,” IAMAI stated, adding that this “would aptly reflect the economic reality of the transactions”.

IAMAI has also urged the authorities that the platform fees, retained by gaming companies, should continue to be taxed at 18 per cent. “Our current GST rate at 18 is in line with best practices and reduces the incidence of illegitimate operators,” it added in its submission.

The Indian gaming industry is currently valued at $2.2 billion and is expected to grow at a CAGR of 30 per cent.

Malay Kumar Shukla, Chief Legal and Compliance Officer, Games24x7, said: “The current rate of 18 per cent on GGR should be continued with, as a higher rate of tax, or worse, tax on the complete face value, would not only be against the spirit of levying GST….. but would also conclusively render the legitimate platforms’ business model unviable, thereby reducing revenue for state, and lead to the proliferation of a black market.”

He also pointed out that online skill gaming businesses offer platform-fee based services, and the GoM should consider this nuance. “ A 15-20 per cent rate of tax on Gross Gaming Revenue (GGR) yields optimal revenue and tax, ensuring the highest degree of compliance of players and operators with the legitimate regulatory framework,” Shukla added. 

Published on May 10, 2022