Impact of GST on the online gaming industry post the decisions taken in the 51st GST Council Meeting.

[Rupesh Sharma]

GST ON ONLINE GAMING

Post the 51^st meeting held on 02.08.2023, the GST Council has decided to tax online games at 28% at entry level i.e. on the amount paid or payable to or deposited with the supplier, by or on behalf of the player (excluding the amount entered into games/ bets out of winnings of previous games/ bets) and not on the total value of each bet placed. The necessary amendments will be made in the CGST Act and IGST Act, including an amendment to Schedule III of the CGST Act to give effect to their decision from 1^st October 2023.

Impact on the industry in comparison to the way GST is being levied today:

As of today, the GST regime differentiates online games based on skills versus chance. 

A game of skill is one where the outcome is dependent on the experience & expertise of the player 

Game of chance on the other hand is based on luck similar to betting, gambling etc.

An online gaming platform keeps money in 2 ways.

1. Platform fee for participating in a game

2. A portion of pot money is kept aside for distribution as prize money.

A game of skill is taxed at 18% of the platform fee or GGR (Gross Gaming Revenue) whereas a game of chance is taxed at 28% on the total bet value.

For example in a game of skill, if 5 players plan on betting Rs.500 (Rs.100/- each) and the platform charges 10% as a fee, then the calculation of GST would be as follows:

Platform fee - Rs 100 per player*10% = Rs.10 for each player.

Total platform fee - Rs.10*5 players = Rs.50/-

Applicable GST - Rs.50*18% = Rs.9

Clearly GST is on the gaming platforms revenue i.e. platform fee or its GGR.

Impact of the current amendment

The current amendment treats game of chance and game of skill at par and levy’s GST at 28% on the total amount deposited or paid at the entry level instead of the platform fee

To put it in context, in the above mentioned example if 5 players bet on Rs.500 or deposit Rs.500(Rs.100 each) to play games or make bets and the platform charges 10% as a fee, the GST would be calculated in the following manner:

Rs.500 total deposit money*28% GST = Rs.140/-

Therefore, the online gaming platform is actually paying a GST of Rs.140/- on an income of Rs.50. This accounts for a 280% tax on the actual income earned by the platform.

Impact on participants/players

As a player if one wants to deposit Rs.100, a GST of 28% will be levied at entry stage on the deposit made i.e. on Rs.100. 

The total deposit of the player will therefore come down to Rs.72 (Rs.100 - 28% GST = Rs.72) if the amount of Rs.100 is treated as cum tax value. This will in turn lower the playable value received by the participant.

However, if the entire sum of Rs.100 is treated as a deposit, then GST will be levied on Rs. 100 and the player will end up paying Rs.128 (Rs.100 + 28% GST) to make such deposit

To make things worse, a TDS of 30% will be deducted on the net winnings. 

Therefore in the above mentioned example if a participant wins the bet and takes home Rs.500 (Rs.100 deposited by him + Rs.400 winning amount) he will shell out Rs.148/- as total tax (Rs.100 deposit*28% GST + Rs.400 net winnings*30% TDS).

Legal Aspect

Even from a legal standpoint GST is applicable on supply for consideration. Can the amount deposited with the platform for playing games be looked upon as a consideration received? The answer is no. It is actually an amount that will be used by the participants to play games or make bets. The deposit amounts therefore do not belong to the platform in the first place. As discussed above, its revenue is the platform fee that is charged from the participants to participate in a game. So how can an amount on which the gaming platform has no hold be its consideration?

Conclusion

The way the entire levy of tax has been structured is illogical and purely revenue driven that will actually kill the interest of participants on one hand and make it unviable for online gaming platforms on the other hand, especially the smaller players.

While addressing the media after the council meeting, the Hon'ble Finance Minister emphasized on how the government has not been able to extract the kind of revenue it ought to have done from the online gaming industry under the current tax regime and how these amendments will help the government meet those objectives. 

In the quest of trying to squeeze the most out of the online gaming industry, the council sadly overlooked the fact that such measures could potentially lead to the death of smaller players in a booming industry, which in turn would put everyone on the losing side.