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In its 50th meeting held on Tuesday, the GST Board decided to impose a tax of 28 percent on the full face value of bets which includes online games, horse racing and casinos. This is a crushing blow to the rapidly growing gaming industry, riding the twin waves of technology and entertainment. Unfortunately, rather than being driven by economics, ethical considerations appear to have influenced the council’s decision. Indeed, the Federal Minister of Finance said with great assurance that the Council’s deliberations took into account the “moral question” of whether these activities should be taxed at the same rate as taxes on essential items. Nor is a distinction made between “games of skill” and “games of chance”. Shares of Delta Corp., the casino operator that also has online operations, collapsed 23 percent, while shares of Nazara Technologies Inc., a digital games and sports company, fell and subsequently recovered. This was certainly not what the rapidly growing emerging sector was hoping for.
The issue of taxation in this area has been controversial with strong differences of opinion existing within the council. Earlier, a group of ministers (GOM) proposed a 28 percent tax on these activities for the full value of the consideration paid, and recommended that no distinction should be made between games of skill or chance. However, with some reservations, the Council decided to reconsider the report. Some states were in favor of taxing the three activities at full face value, while others advocated a tax on platform fees and on total gaming revenue for casinos. With the council now deciding to go down this very path, the nascent industry is facing a blow from which it will find it difficult to recover.
This is despite the fact that the online gaming market in India has experienced a huge expansion over the past few years. According to the EY-FICCI report, the revenue of the online gaming sector in the country increased from 79 billion rupees in 2020 to 119 billion rupees in 2022, and is expected to reach 153 billion rupees by 2024. The country has also seen a sharp rise in new users, The report puts the number of paying players at 95 million in 2021. While there is a huge opportunity for growth in the sector, the GST decision could disrupt the entire sector, discouraging investors and users. It is unfortunate that after six years of transition to the GST system, instead of focusing on reducing the number of tax brackets, and providing stability and predictability to the tax system, the GST Board has chosen to go in the opposite direction. In a research draft, Niti Aayog sought a “light-touch regulatory framework” for the online fantasy sports industry and distinguished between fantasy sports, betting, and gambling. This is why a hard GST hammer needs to be tempered, and the damage it will do just isn’t worth it.
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