Hon’ PM has been very vocal about the growth potential of the online gaming industry & its ability to make India a global gaming superpower. The FM has set up an AVGC taskforce to promote the online skill gaming industry. MEITY has taken positive steps to consult with the online gaming industry stakeholders and come up with progressive regulations for this industry. All this proves that online skill gaming is a sunshine industry and taxing it alongside CASINO’s & Lottery will only lead to erosion of the sector’s value and reduce the promise it holds– yet on the other hand, GoM recommendations threaten to derail the online gaming industry. Isn’t this a classic case of the left hand not talking to the right? And the tax mechanism on prize pool money that will clearly choke online skill game players, are in contradiction to what the PM envisions.
It’s time to take the online gaming industry away from the scanner. Although the industry finds itself anticipating massive growth in the coming years, impediments cannot be ruled out. The first bone of contention lies in the misinterpretation of online skill-based gaming as gambling, clubbing it with casinos, lottery, etc. This is compounded by the method of taxation considered by the GoM. The question is whether taxes should be imposed on the gross gaming revenue or the entire consideration amount?
The Group of Ministers (GoM) recommended that online gaming should be taxed at the full value of the consideration, which means the prize pool + the platform fee. This is a misguided unintentional error in understanding the construct of taxation. The prize pool is not earned as revenue by online skill gaming operators. Their earning is only the platform fee. Any proposal to levy GST on 28% of the entire contest entry amount instead of platform fee /Gross Gaming Revenue (GGR) is likely to make the online skill gaming industry commercially unviable. Taxing GGR instead of the entire contest entry amount has increased tax revenue in the long run. It would consequently disable the forming of grey markets as seen in other developed countries like the USA, UK, Australia and Germany.
Multiple High Courts as well as the Supreme Court of India have held that games of skill and games of chance are two distinct categories and cannot be treated synonymously. Clubbing online skill gaming with gambling and betting is unfair to the skill gaming industry when their legal status, mode of operation, and method of transaction stands in contrast with each other. A sub-optimal tax structure will shift the revenue to offshore operators and place Indian start-ups at a competitive disadvantage compared to global peers. It will demoralize India's technology-led innovation sector, entrepreneurial spirit and overall vision of presenting India as ‘Atmanirbhar’ and a digital powerhouse on the world stage.
The online gaming industry has the potential to become a $5Billion industry by 2025, as per published reports. It is a direct source for attracting high FDIs. Progressive in its vision, the industry leverages future-ready technology and engages a highly skilled workforce—a potential booster to the AVGC sector in India. Our Hon’ble Prime Minister has been vocal about the growth potential of online gaming and its ability to make India a global digital superpower. An AVGC taskforce has also been set up to promote the online gaming industry. The Ministry of Electronics and Information Technology (MEITY) has taken positive steps to consult with online gaming industry stakeholders to establish progressive regulations for this industry.
One needs to rationalise and question whose best interest the Council needs to preserve—an industry that services 40+ crore users to ensure revenue for the government in addition to generating employment or a few thousands of gamblers who have no contribution to the growth of the economy—indeed a matter of concern.
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