By: Dr. Aruna Sharma, Practitioner Development Economist and retd. Secretary Government of India
The amendments in the Central and State Goods and Services Tax (Amendment) Act, 2023 have ushered in a new era of taxation since these acts came into effect on 1st October, 2023, aiming provide clarity on the taxation of casinos, horse racing and online gaming activities. The revised provisions of the Central Goods and Services Tax (Amendment) Act, 2023 established clear definition for ‘online gaming’ and ‘online money gaming’ to reinforce the taxation framework for these activities.
In August 2023, the GST Council modified the law to specify that starting from October 1, 2023, all online games involving bets, regardless of the elements of skill or chance, will be subject to a 28 percent GST rate applied to the entire value of the bets placed, rather than on the gross gaming revenue (GGR). As a result, Parliament amended the tax laws, startling the entire industry and its stakeholders.
Since the Council’s decision, online gaming companies are being accused of tax evasion and short payment of taxes since 2018. Consequently, Directorate General of GST Intelligence (DGGI) served tax notices retrospectively to reclaim pending tax dues since 2018. Experts believe this move could potentially spell the demise of the entire industry and the scenarios unfurling hint to a game of cat and mouse, as the DGGI authorities continue to serve retrospective tax notices.
In the ongoing legal feud between the government and industry stakeholders regarding legitimacy of the current taxation framework, the apex court reigns supreme with its the long-awaited verdict on the Gameskraft v/s DGGI case scheduled for the 15th December 2023. The judgement will decide the legality aspects of the tax notices served to iGaming companies to reclaim over ₹1 trillion by GST authorities while the iGaming companies filed petitions stating these as illegal and arbitrary.
In pursuit of this watershed moment, one can surely say that ‘at the outset the haze is temporary and clouds shall clear.’
Balancing Taxation and Growth:
The silver lining for the iGaming industry in this scenario is that MeiTY has clearly come out of central government rules for regulating iGames of Skill thereby distinguishing it from iGames of Chance. The Self-Regulatory Bodies (SRBs) to be set-up by iGaming platforms and companies can thoroughly debate and establish a set of distinguishing parameters. These bodies should be in constant dialogue with iGame developers for peer group reviews and consultations adding to credibility of iGaming industry.
A key message in this line of debate stands to be that games of skill do not metamorphosis into games of chance if played online. The additional features in online gaming such as simulation exercises allow participants to experience the difference between offline and online gaming. Thus, criteria for distinguishing games of skills and chance should be pondered upon at the earliest as not differentiating between the two can give rise to hidden problems.
The differentiating criterion can consider:
• Performance consistency: A revealed that experienced players consistently outperformed their less-experienced counterparts, suggesting a strong correlation between experience and skill.
• Correlation between experience and success: The study found that players with higher levels of experience had higher win percentages, indicating a clear link between experience and skill enhancement.
• Skill improvement over time: The study’s final conclusion was perhaps the most significant — it stated that users experienced skill improvement as they played more games. This enhanced skill translated into more wins and a higher winning percentage.
• Sensory Motor Control: It encompasses critical aspects such as hand-eye coordination, balance, reaction time, rhythm, and the proficiency with which players handle their input devices, such as a mouse and keyboard.
• Cognition: Strategic planning, memory retention, problem-solving skills, and the ability to manage challenges are effective strategies along with consistent performance throughout the game indicate a higher degree of skill.
• Social Competence: Players who actively engage with their teammates and offer mutual support demonstrate a higher level of skill in cooperative games.
• Personal Competence: Self-awareness and self-critique are crucial components of personal competence. Players who recognise their strengths and weaknesses, adapt their gameplay accordingly, and manage their energy levels to effectively gain an advantage in skill-based games.
• Media Literacy: Understanding the game’s design, having knowledge of game mechanics, and the ability to optimise the gaming device or interface are key aspects of media literacy.
The industry is predicted to see higher CAGR but a retrospective taxation on all skilled-based iGaming companies impairs the investment estimates and potential rise of the start-ups, developers and SMEs in the India online gaming industry.
Additionally, a poor tax policy shall result into sprouting of gray markets and a shift to other geographical zones with more clear sustainable policies. Thereby, to ensure a conducive growth of the Indian iGaming industry, holding the baton of becoming the 2nd largest in the world requires a relook at the GST slab and clarification from the judiciary.