Economy
Amidst Consternation In Indian Gaming Ecosystem, Is Government Turning Into A Nanny State And Simultaneously Killing A Golden Goose?
- Proposed 28 per cent GST on all forms of online gaming does not take note of legally sustained distinction between games of skill and chance
- All stakeholders of the Indian gaming ecosystem have expressed alarm at the long-term consequences of a tax structure seen to be excessive or unfair.
- IT Ministry has a different view on the GST Council’s one-size-fits-all tax proposal.
Online gaming industry. (Representative image).
A day before the 50th GST Council met on 10 July, Swarajya carried a well argued article by Ashutosh Muglikar, which suggested that government should look for win-win situation when it came to the finalising the GST on online gaming — something that would be fair to users as well as industry.
Sadly, it was not to be.
As the minutes of the council’s meeting reported, the Group of Ministers (GoM) which was constituted to look into the issues related to taxation on casinos, horse racing and online gaming and whose first report on June 2022 was deemed unsatisfactory — again submitted a report.
This time stating “no consensus could be reached on whether the activities of online gaming, horse racing and casinos should be taxed at 28% on the full-face value of bets placed or on the GGR “ (the Gross Gaming Value, the platform fee charged on players).
In view of the failure, the GST Council took it upon itself to close the issue and decided: “Casino, Horse Racing and Online gaming to be taxed at the uniform rate of 28%. Tax will be applicable on the face value of the chips purchased in the case of casinos, on the full value of the bets placed with bookmakers in the case of Horse Racing and on the full value of the bets placed in the case of Online Gaming”.
Swarajya’s report on the proceedings, quoted Finance Minister Nirmala Sitharaman saying, the tax on online gaming companies would be imposed without making any differentiation based on whether the games required skill or were based on chance — adding that the intention behind these decisions was not to put an end to any industry related to online gaming, casinos, and horse-racing.
But in the case of online gaming at least, throttling the industry might just be the end effect, fear many industry watchers.
This has also emerged as the near-unanimous view of almost all stakeholders: investors in the gaming business, industry bodies, the players and the gaming service providers.
Consider:
The Internet and Mobile Association of India (IAMAI) said the proposed tax which equates legitimate gaming with gambling, would threaten the $ 20 billion Indian online gaming business and place it at a disadvantage in the global gaming market.
Over 60 leading players were reported by Hindu Businessline to have told government: ““India boasts a staggering 421 million active online gaming users, and our concerns and rights were not adequately considered when determining the 28 per cent tax rate, despite multiple representations that sought a more balanced and equitable taxation framework for this sector.” The new proposal would increase the entry cost for gamers from Rs 1.80 for every Rs 100 to Rs 28, a staggering hike of at least 1000 per cent.
The BBC reported Roland Landers, CEO of the All India Gaming Federation saying: "It is very unfortunate that when the government has been supporting the industry… such a legally untenable decision has been taken. It will be catastrophic for the $1 trillion digital economy dream of the Prime Minister".
Elsewhere he is quoted calling the decision “unconstitutional, irrational, and egregious.”
Skill or chance
The legally shaky ground of the proposed bundling of all types of games — both games of skill and games of chance — under the highest GST bracket should have been apparent to the states in the GST Council who voted by a majority to embrace the vastly increased GST pot at the end of the online gaming rainbow.
Even two years ago, High Courts in Kerala , and Karnataka overturned partial or complete bans on online gaming and upheld the distinction between games demanding skill and those based purely on chance – something the GST Council has ignored.
Abhishek Malhotra, Managing Partner TMT Law Practice), writes: “While this has come as quite a shock for the industry, it remains to be seen as to how and on what basis, this policy shift is to be incorporated in the law. This will require an amendment to the GST Act… It’s to be seen whether it would survive a constitutional challenge, especially since the Supreme Court and at least two High Courts have provided a distinct classification between games of skill and chance. To bundle everything under one head, is harsh and unsustainable”.
The millions who indulge in the top rated fantasy sports games like Dream 11 and MPL and spend hundreds of hours sizing up the form of IPL players would be outraged if told the result of their efforts was all chance.
Another legal expert Sudipta Battacharjee of Khaitan and Co, quoted by BBC felt the proposed GST regime would "disincentivise players and is totally inconsistent with global standards" where VAT or GST is levied at a median rate, and that too only on platform fees or commissions.
Different view of IT Ministry
Ironically, not every entity in government is on board with the Finance Ministry and the GST Council. IT Minister Rajeev Chandrasekhar, while speaking at a recent Express Adda event said “We are upset (with the GST Council decision)”, reported PTI while Financial Express headlined that he would ask the GST Council to reconsider the decision of imposing 28 per cent GST on online gaming.
Rajeev Chandrasekhar suggests that states tend to extrapolate online gaming as a surrogate of gambling and consider it a social evil.
The boilerplate response of those advocating the banning or severe control of all times of gaming and gambling speaks of the potential harm to youngsters and the state’s duty to protect such vulnerable sectors from temptation.
This is beginning to look very much like the argument in favour of a Nanny State. In fact an interesting facet of mobile gaming in India was brought out by InMobi’s Mobile Marketing Handbook 2022: Some 43 percent of all mobile gamers in India are women — and 49 percent of them are 34 years or older — not exactly vulnerable youth.
Also overlooked in treating this purely as a taxation mobilization matter without consideration of wider ramifications, is the huge opportunity presented by India’s dominant position in global gaming. Analysts Sequoia and Boston Consulting Group (BCG), called Mobile Gaming a ”$5 billion+ opportunity” for India, by 2025, as we reported in Swarajya, even a year ago.
A report (registration needed to download) by technology staffing firm TeamLease Digital highlights the wide spectrum of skills and qualifications that are needed to fuel India’s pole position in gaming. The accompanying graphic highlights some of them.
Any imposition of a level of taxation, perceived by India’s over 400 million active online gamers as unreasonable will likely drive a significant number to foreign options which are deemed to be more paisa vasool.
A pragmatic policy calls for more reasonable tax levels matched by a readiness to get off that moral pedestal from which all gaming looks like evil incarnate.
