Industry Says 28% GST on Online Gaming Could Fuel the Black Market and Deter FDI

According to industry experts, taxing online gaming at the highest GST slab of 28% could only cause the rise of a parallel black market and act as a barrier to attracting foreign direct investment (FDI). This response comes in connection with the Group of Ministers (GoM), set up to look into the taxation of racing, casinos, and online gaming, unanimously agreeing to levy a 28% GST rate.

At present, the GST rate on online gaming that involves betting or gambling is 28%. For online games that do not involve betting or gambling, GST is levied at 18%. Further, online gaming platforms are also liable to 18% GST on the commission collected for each game. For horse racing, the GST rate has been fixed at 28% of the total bet value. 

The GoM is set to meet up later this month to finalise its tax proposals to the GST Council. However, industry experts believe that the increase in the GST rate could lead to the proliferation of a parallel black market. A spokesperson of the Federation of Indian Fantasy Sports (FIFS) said that it is important to differentiate between skill-based online games and horse racing, lotteries, and casinos. In the case of skill-based online games, for example, fantasy sports and rummy, the platform owners do not have any right, title or interest in the prize pool amount. 

Further, in certain cases, the amount is received and held by a third party or an independent custodian on behalf of the players. The prize pool is not a part of the value of services provided by the platform. Hence, no GST is currently levied on the prize pool. Now, if the contest entry fee is taxed, then the burden increases on both the users and the gaming platforms. The barriers to entry also become high, and FDI attraction drops. 

The spokesperson said that all of this would inevitably lead to the proliferation of a parallel black market. There would be a rise in the number of illegal businesses that will evade taxes.

The Indian online gaming industry has attracted a huge amount of FDI over recent years. The industry fears that the levy of the highest tax rate would now act as a deterrent. Industry experts say that the market has always operated by differentiating between skill-based games and games of chance, and so far, only the gambling category has been taxed at 28%. They said that the bracketing of skill-based games with gambling is incorrect, and it should instead be compared with legitimate, content-intensive businesses such as OTT platforms.

For any clarifications/feedback on the topic, please contact the writer at athena.rebello@cleartax.in

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