18% to 28% Tax Increased For Online Money Gaming: Boon or Curse?
The online gaming sector has experienced exponential growth in recent years, encompassing a wide range of activities including fantasy sports, online casinos, sports betting, and more. This evolution has prompted discussions about the taxation of transactions within the online gaming space. The distinction between games of skill and games of chance, as well as the nature of actionable claims, has been a point of contention.
This article discusses the Indian Government's decision to impose a 28% Goods and Services Tax (GST) on online gaming platforms. It explores the reasoning behind the decision, and the potential impact on the online gaming industry, making it a boon or curse for online betting companies.
Decision to Levy 28% GST:
In the 50th meeting of the GST Council on July 11, 2023, there was a discussion about putting a 28% GST on online gaming. This idea came up after a report was given by a group of ministers. The decision to add a 28% GST to online gaming sites comes from suggestions by the GST Council, which is a group of people from the central and state governments. Since the GST was introduced in July 2017, there has been a 28% GST on the money earned from betting and gambling in online games.
Finance Minister Nirmala Sitharaman, who led the Council's meeting, mentioned that the government will work on changing the Goods and Services Tax (GST) law during the ongoing session of Parliament. This will allow them to put the tax into action, even though Sikkim and Goa had different opinions about how the tax should work for people using casinos.
The reason behind the decision:
During the meeting of state finance ministers, many of them expressed worries about the increasing addiction to online gaming, particularly among kids. After discussing it, they all agreed to put a 28% tax on these games.
The Finance Minister, Nirmala Sitharaman, explained that this decision wasn't about shutting down the industry. Instead, it was based on a "moral question." She pointed out that online gaming, casinos, and horse racing can't be taxed at the same rate as things we really need. This decision was made with the understanding that these activities are different from essential goods.
Impact on Online Gaming Industry:
Charging a 28% GST rate on online gaming has worried people about how it might harm the industry. Before, companies in online gaming were paying a GST of 18% on fees for using the platform, which could be 5% to 20% of the total value. The industry doesn't agree with the 28% tax on the betting and gambling parts of online gaming. This has caused arguments in court and talks about how it might affect the industry's progress.
Consider a gaming website where you spend ₹200 to participate in a game. A portion of this money, let's say ₹40, is used by the website to manage the game and maintain the site. This portion is called the gross gaming revenue (GGR). Previously, the GGR was subject to an 18% tax, which meant the website had to pay ₹7.20 in taxes. However, the new rule dictates that the tax will be calculated based on the entry fee itself, which is ₹200 in our instance, with a tax rate of 28%. This would result in a tax of ₹56.
This change means there will be less money left for the website to cover its costs and have prizes for winners. Adding to this, players also already have to pay 30% tax on their winnings, which makes things harder for them.