The Ministry of Electronics and Information Technology (MeitY) and the Ministry of Finance (MoF) have conflicting views regarding the Goods and Services Tax (GST) Council’s decision to impose a 28 percent GST on the turnover of real-money online games, without distinguishing between games of chance and games of skill.
The GST Council’s decision has been misunderstood, as the issue lies not with the 28 percent tax rate but with its application. The tax is levied on the turnover rather than the fee charged by the gaming company. This is conceptually wrong as GST is meant to be a tax on supplies, not a turnover tax.
Additionally, the GST Council treated all online games as games of chance, disregarding the distinction between games of skill and gambling. This could have negative consequences, discouraging investment in the Indian gaming industry and potentially driving players to offshore platforms that escape taxation.
MeitY recognizes the potential of online gaming as a thriving market for entrepreneurship, investment, and job creation. It has already issued rules for online games, which promote self-regulation and prohibit gambling and harmful content. If games comply with these guidelines, they should be considered distinct from gambling and receive appropriate treatment.
While the differences between games of chance and skill are clear, gaming companies may need to challenge the GST Council in court due to its failure to recognize these distinctions, which contradicts various Supreme Court judgments. Legal clarity is essential to convince state governments that associate moral turpitude with all online games involving gambling.
The tax demand on the entire gaming turnover contradicts the Karnataka High Court’s verdict, which limited the tax to the platform fees constituting the gross gaming revenue. MeitY can only discuss its case with the MoF, which should view online gaming as a potential growth industry rather than just a source of immediate tax revenue.
Ultimately, wise taxation policies are crucial to foster the growth of the online gaming industry and ensure a promising future.