Mumbai: IndiaTech, an industry association representing consumer internet startups, has urged the government to tax games of skill differently from games of chance. 

In a letter to Finance Minister Nirmala Sitharaman ahead of the Union Budget 2022-23, IndiaTech has proposed that goods and services tax be levied only on the amount received by the platform for providing its services and not on the prize pool kept for distribution among the players. 

ET has reviewed parts of the letter. 

IndiaTech, a grouping whose members include online gaming unicorns such as Dream11 and Mobile Premier League, has requested the finance minister to ensure that Rule 31A of the CGST Rules 2017 – which apply to lottery, betting, gambling, and horse racing – will not apply to games of skill. As per Rule 31A, the entire transaction value—which includes the winning amount—is taxed. 

The GST Council, the apex decision-making body on matters of indirect taxes, constituted a group of ministers last year to address issues related to the online gaming sector for the purposes of taxation. The GoM was tasked to come up with recommendations on the GST rate for online gaming as well as address whether GST is applicable on the total transaction value, which includes the prize money, or the net commissions (revenues) that accrue to gaming firms. 

According to two people in the know, there was a view within the group to recommend a blanket 28% GST and club online games of chance and those of skill. Most gaming firms pay 18% GST as platform fees, currently. IndiaTech in its letter recommended this should become a norm for platforms offering games of skill. The GoM has not yet submitted its recommendations to the GST Council. 

IndiaTech urged the government to distinguish between the two categories and proposed that the online gaming industry pay GST only on net commissions (revenues). 

For instance, four people log in to a gaming site and play Ludo by depositing Rs 100 each. One of the four wins the game and receives Rs 380 as the winning amount. The balance— Rs 20—is the gaming company’s commission. Currently, the question is whether GST is payable on Rs 20 or Rs 400. 

“The coercive action taken by the authorities was addressed by the Punjab and Haryana High Court to address such actions till the final decision of the group of ministers formed for the gaming industry is made public,” said Abhishek Rastogi, partner at Khaitan & Co, who argued for online gaming platforms before the high courts. “As the industry waits for the decision, it is expected that the budget will provide the required sigh of relief to the online gaming platforms.” 

The government could come up with a clarification and ask gaming companies to pay 28% GST. In the past, the gaming companies had approached the government and sought that GST should be levied on their margins and not the total transactions. 

The industry body said in the letter that higher tax rates will adversely impact its growth. “Leading global regulated markets including the UK, most countries in the EU, and Nevada, New Jersey in the US, tax on gross gaming revenue at the rate of 15% to 20%,” it said. 

The online gaming industry has boomed in India on the back of the Covid-19 pandemic and attracted significant investor capital. As of December, there were over 900 gaming startups in India, according to startup industry tracker Tracxn.