Games of skill (non-gambling games) or chance (gambling games) involving wagering on outcomes will be taxed at 28% under India’s GST regime, Revenue Secretary Sanjay Malhotra informed Economic Times last week. Online games that don’t involve wagering will continue being taxed at 18% GST. Speaking to the Indian Express, Malhotra hoped that the tax laws would be amended to reflect the hike in the Monsoon Parliament session, slated to begin on Thursday.
Malhotra added that the industry is only paying taxes at 2-3% right now—which is less than the GST imposed on essential items like food products.
Why it matters: The clarification follows the GST Council’s recent announcement that the GST slab for ‘online games’ will be hiked from 18% to 28%—the latter rate is typically levied on gambling. The move impacts the online, real-money gaming industry, whose ‘games of skill’ that involve wagering on outcomes are accused of inflicting harm to players in ways similar to gambling, such as addiction, financial losses, and even suicide.
However, some commentators noted that the hike effectively conflates all games played online with gambling—including video games and the like. As MediaNama‘s Editor Nikhil Pahwa wrote in the Economic Times:
“Some free games [which are not online real money games] make money via advertising, while others like Clash of Clans nudge users to buy upgrades or virtual goods like clothing (‘skins’) by purchasing tokens. Importantly, you can’t convert tokens back into rupees…By apparently applying the same yardstick as real-money gaming to regular gaming, it [the government] has foreclosed business models other than advertising for some game publishers, and made a fairly unique form of entertainment much more expensive for consumers. This hurts an important creative industry.”
The Revenue Secretary clarifies the extent of the collateral damage in this case. That is, games that don’t involve wagering will dodge the increased tax liability.
Article continues below, you might also want to read: Roundup: What is the industry saying about the 28% GST on online gaming?
Will the government make money from this tax hike?: The online real money gaming industry is arguing that the hike will decimate industry revenues—after all, few users are likely to put down bets of Rs. 100 to win a taxed income of around Rs. 10 to 20.
Speaking to Economic Times, Malhotra estimated that if the demand for the games is inelastic—in that consumer behaviour remains the same despite the hike—then the government’s tax revenues from the sector could increase ten-fold to about Rs. 15,000 to 20,000 crore. If the demand is elastic—as the industry seems to presume that it is—then the government’s move serves a “social purpose”, Malhotra argued. “It may also have an economic rationale because people will hopefully use this time in more productive activities,” the Secretary added.
What about companies abroad now?: Speaking to the Indian Express, Malhotra added that users paying ‘foreign’ companies won’t escape the tax net—they’ll be taxed at the “payment channels”, instead. It’s unclear whether Malhotra was referring to ‘illegal’ betting sites registered abroad (and criticised by India’s real money gaming industry), or Indian gaming companies setting up shop abroad post the hike.
‘Payment channels’ could include imposing TCS or Tax Collection At Source, for which banks could be brought “into the picture”, Malhotra suggested. Companies that fail to collect these taxes would be transgressing the law, leaving it open to the government to prohibit or regulate their services until they “open an Indian account or make payments to us”, Malhotra added.
STAY ON TOP OF TECH POLICY: Our daily newsletter with the top story of the day from MediaNama, delivered to your inbox before 9 AM. Click here to sign up today!