Ahead of a Group of Ministers (GoM) meeting on Monday, tech industry body, IndiaTech.Org has urged to treat online skill-based gaming differently from gambling, betting and horse racing for the purpose of collecting GST.

“It has been well established by various Court judgments that online games of skill are different from those that are games of chance and, therefore, not equivalent to gambling/betting. Moreover, given the preponderance of skill, it will not be prudent to club online games of skill with casinos and horse racing in a uniform way,” IndiaTech.Org said in a letter to the members of the GoM.

“The nature of the online skill-based gaming industry and the impact and contribution from the other industries to the economy is entirely different,” it said.

Explaining the role and control of gaming platforms in handling the contest entry amount (CEA) and the component on which GST should be made applicable, IndiaTech.Org said the CEA comprises of two components, viz — gross gaming revenue (GGR) or the platform fees and prize pool. 

Components’ definition

GGR is the gross amount of fee that the technology platform earns for providing the service of an online technology platform.

Prize Pool, on the other hand, is the amount that may be held in a clearly demarcated form or account that may include but is not limited to an escrow account, separate bank account, monies held in separate electronic ledgers by third-party service providers and payment gateways (PGs), wallets, etc. that is distributed to the users depending on their winnings or ranking at the end of each game, which is decided by the game format. 

Typically, GGR may constitute anywhere between 1-20 per cent of the CEA, for which each user is issued an invoice by the technology platform where required under applicable law. GST is currently paid at the rate of 18 per cent on the platform fee or GGR as applicable.

“It is pertinent to note that the technology platform owner has no right, title or interest over the prize pool amount. In some cases, this amount is received and held by a third-party/independent custodian for and on behalf of the players. The mandate of such third-party/independent custodian is to fully distribute the prize pool amount to winners as per predetermined rules of the game,” ndiaTech.Org said.

In certain cases, the third-party may not be a custodian but may merely be a service provider facilitating transactions and charging a commission for the same purely like a bank, PG, wallet, etc. Therefore, the prize pool does not form part of the value of services provided by the platform, and hence, no GST is being paid by the technology platform on the prize pool since it has no right over the amount, IndiaTech.Org added.

Need a suitable clarification

The industry body has suggested that suitable clarification be issued that Rule 31A is not intended to cover games of skill and therefore, is not applicable to any form of online gaming where there is a preponderance of skill over chance (thereby covering online fantasy sports as well as online skill-based casual games and sports).

It added that only GGR alone should continue to be considered as the value of supply as per current practice.

Additionally, if there are other formats/revenue models followed by platforms such as subscription fees, in-game revenue etc., in such cases GST should be applicable on only the amount that is received by the platform for providing its services and no GST shall be charged on the prize pool that is kept for the purpose of distribution among the players.

“Games involving predominance of skill should ideally be taxed at 18 per cent on the platform fee... higher tax rates will adversely impact the growth of the industry,” it added.

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