An ex-chairperson of the Central Board of Indirect Taxes and Customs (CBIC) stated that the Goods and Services Tax (GST) Council, India's top decision-making body on indirect taxes, must distinguish between skill-based and betting-based online games before taxing them.
In July, the GST Council probably meets.
The difference between online games that place an emphasis on skill and those that are more similar to betting, wagering, and gambling must be maintained. The GST law already permits the taxation of actionable claims in gambling and betting, according to John Joseph, a former Member (Policy) at the CBIC and current strategic adviser at DeepStrat, a Strategic Consultancy and Think Tank with offices in New Delhi.
However, he argued, it would be stupid to apply the same principle to services offered by intermediaries for online gaming, which are protected by the Constitution.
According to John Joseph, it's critical to distinguish between the two categories of games because skill-based games are not gambling and shouldn't be subject to gambling-related taxes. He suggested that the GST Council take into account a lower tax rate for skill-based income, such as 18%.
The GST Council's decision on taxation will have a significant impact on the fast-expanding Indian online gaming market. The industry has been pushing for a lower tax rate, and Joseph's remarks may give them some encouragement. In May 2021, the GST Council established a Group of Ministers (GoM) to discuss casinos, racetracks, and online gaming. Whether it was a game of skill or chance, the GoM apparently settled on a tax rate of 28 percent.
Additionally, there hasn't been an agreement on whether GST should be applied to just the fees the portal charges or to the total consideration, which includes the bet amount.Online gaming that does not include betting currently charges an additional 18% of fees levied by websites as GST.
The central government has announced online gambling regulations and suggested self-regulatory organizations to approve so-called real money games online. Additionally, it has levied Tax Deducted at Source (TDS) at a rate of 30% on net profits from online games.
The distinction between online games of skill and those that may be in the nature of betting, gambling, and wagering is further clarified by recent legislative and regulatory changes, according to Joseph.
The following are some of Joseph's key points in his statement-
1. The GST Council must distinguish between online games that require skill and those that require betting.
2. Skill-based games shouldn't be taxed as gambling because they aren't.
3. The GST Council should take a lower tax rate into account, such as 18%, for skill-based games.
4. The GST Council's decision on taxation will have a substantial impact on the fast-expanding online gaming sector.
"Online skill gaming is a legal industry, and it needs to be properly recognized in all policies, including taxation and intermediary status. Support and expansion of this emerging industry will improve open revenue collection and boost investor confidence, according to Joseph. Therefore, a calibrated reevaluation by the GoM/ GST Council will significantly contribute to ensuring the industry's health.
According to research by Lakshmikumaran & Sridharan Attorneys, the proposed GST should be calculated based on gross gaming income rather than the overall sum. The legal firm also emphasized that the tax rates on gross gaming revenue have been limited to between 15 and 20 percent in the most advanced and industrialized countries.
In order to establish a favorable taxing environment and avoid levying a high 28 percent GST on the whole value of consideration, Narayanan recommended that the GST Council take into account the factual legal situation, and the expectations of the industry, and follow international best practices.
The gaming industry and the general public are likely to be paying careful attention to the GST council's decision regarding the taxes of online gambling. Balancing the need to drain money with the desire to avoid stifling innovation and progress is a difficult issue for the council.
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