Online Gaming Companies Are Providers of Service and Should be Taxed As Such
Hyderabad: The taxation policy on gaming has proven to be a contentious issue with the industry and the GoM taking contrarian views on what rate and value the online gaming platforms should be taxed at. The industry has maintained that the tax rates must be reasonable, ensuring the ecosystem remains competitive and conducive to growth.
However, in a recent report, it was noted that the key contention for decision making is whether the prize pool which is the “actionable claim” on online gaming platforms should be treated as goods or whether the tech facilitation provided by the platforms be treated as a “supply of service”. This will become key in determining if GST should be levied on CEA (Contest Entry Amount) or GGR (Gross Gaming Revenue).
According to a white paper by TIOL Knowledge Foundation, the case for taxation of online skill gaming is not different from other forms of online services. It states that based on the reading of the GST law, gaming platforms offer an online service (supply of service) and the fee paid by the player is not a payment made to the platform in exchange for any goods (actionable claim). It is a fee charged by the gaming platform for the services offered i.e. supply of services. Therefore, it claims that the existing jurisprudence that the services in consideration here are “not in the nature of betting and gambling and they have been recognised as legitimate businesses”.
The paper has called on the authorities to “adopt a rational approach while evaluating the methodology for taxation of online skill games, which is in line with the innovative and principle based framework”
Understanding the issue Arpita Mukherjee Professor at Indian Council for Research on International Economic Relations (ICRIER) said, “The government’s vision of a successful ‘Techade’ can be accomplished through a mixture of effective policy-making and industry investment in new technologies. While India has the potential to be a hub for Animation, Visual Effects, Gaming and Comic (AVGC), our discussions with industry and experts show that there are issues with respect to taxation in the online gaming industry, which is worrying the investors. It is important that a detailed study is done on the impact of taxes in line with international best practices before deciding the tax rate for the online gaming industry.”
Sources have claimed that the GOM’s report on online gaming has proposed a 28% GST on CEA instead on GGR, which is the platform’s revenue. Speaking on the issue Meyyappan Nagappan, Partner at Trilegal has said, “The levy of GST on the entire Rs 100 i.e. CEA, that too at 28%, would be an industry killer. The change in effective tax paid on such transactions increases to Rs 28, as opposed to Rs 2.7, which is an approximate 1000% increase. This amount of tax (Rs 28) would be more than the revenue earned by the platform (Rs 15), which would make the business unviable.”
Industry reports have consistently highlighted the employment and the revenue potential, as it can help create a demand for skilled professionals across various fields like game developers, programmers, graphic designers etc. Enumerating on this, John Joseph, former Chairman and Member (Policy) of CBIC said, “Online gaming is clearly one such area that not only offers immense growth potential, but also offers India to corner the global market as well. Besides enhancing India’s global clout, it can also establish her reputation as a country open to innovation and ease of business.”
The upcoming GST council meeting on June 11 is expected to deliberate and finalise the issue surrounding taxation for the industry after a long wait of almost 3 years.
