The Group of Ministers (GoM) appointed by the GST Council are to contemplate, in the coming week, on what should be the rate and incidence of imposing GST on lotteries, horse racing and online gaming. While they contemplate, the industry frets.

The games of skill industry, which has given India multiple unicorns, is dissecting each iota of information that is coming out in the media, on the deliberations and possible recommendations of the GoM.

Difference has existed in the Indian gaming (not gambling) industry for more than 150 years since the Public Gambling Act of 1867, wherein games of chance (gambling) were prohibited unless licenced.

The games of skill in general and horse racing in particular (in most State gambling laws) are excluded from the ambit of gambling.

This distinction has even judicially been upheld by the Supreme Court and other High Courts in India.

The jurisprudence pertaining to this distinction dates back to 1967, when the judgment in the  K Satyanarayana case was given by the Supreme Court.

Thus, can this unique differentiator be erased by mere notification or rules, when legislation which sought to eliminate this distinction were challenged and declared  ultra vires the Constitution of India?

Considered as gambling

It is understood from the information available in the media that the GoM considers the entire gaming industry as gambling, which is not only against the established jurisprudence but may also fall foul of the CGST Act of 2017 itself.

Under the CGST Act, actionable claims are sought to be excluded from the ambit of GST, except for ‘lotteries, betting and gambling’.

The judicial interpretation of how ‘betting and gambling’ is to be interpreted, is that the word ‘and’ being a conjunction, must be interpreted that what is sought to be covered within it is betting on a game of chance and not staking or betting on a game of skill.

A recommendation therefore that games of chance like lottery are similar to games of skill, hence not covered within the ambit of actionable claims, may be on a weak footing.

Even within the games of skill, all the games cannot be equated under one umbrella. For instance, staking on horse racing through the tote is facilitated by the race clubs, which are all non-profit entities.

These race clubs primarily rely on the commission earned from staking to fund the horses, jockeys, breeders, livestocks amongst others.

An ecosystem of over 3.5 lakh people depend upon it. Should it be equated with commercial gaming?

Difficult to distinguish

It is also going to be extremely difficult to distinguish between incidence of taxation on casino games with some games of skill like rummy and poker, which are played both online and on the casino floors.

Finally, when considering the rate and incidence of taxation, the GoM should bear in mind that with the growing advent of technology, gaming services have become global.

Global standard

If the rate and incidence of taxation are not as per the global standard, which is taxing on gross gaming revenue — that is, the revenue that the platform or facility receives — there will be an exodus of users to illegal operators and unregulated foreign portals.

The consequences being, the government’s revenue will fall, dubious persons will have a new mode of funding their operations and there will be a large foreign outflow of Indian funds.

The GoM must look at the sector holistically while fixing its rate and incidence of imposing GST on gaming, bearing in mind its nuances and that not all games are a vice.

The writer is Managing Partner, Krida Legal, and advisor UKIBC

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