Will The New GST Rule Destroy India’s Online Betting Industry?

The government’s surprise decision to levy a 28 per cent goods and services tax (GST) on the value of the entire pot for casinos, horse racing, and online gaming has invited intense criticism from several quarters, including the real money gaming industry.

Online Betting Industry Is No Stranger To Controversy

The online betting industry has survived in a legal grey area so far, by claiming that their games are games of skill and not games of chance.

One can imagine a continuum with games that predominantly require skill like chess lying on one end, and games that is purely chance-based games like roulette lying on the other.

Games of chance are illegal throughout India, while online real money games that require some skill are not illegal in most states.

However, state governments and the real money industry are still caught in a tussle over several issues with several states making attempts to ban online betting, with little success.

Why Is The Industry Vehemently Opposing The Recent Tax Changes?

However, apart from the debates of skill, luck, and morality, the issue of taxation has been a bone of contention between the industry and the government.

Interestingly, it is not just the rate of tax that has been debated, but the amount to be taxed has been a matter of debate as well.

Gaming platforms have asked the government to tax the gross gaming revenue or the platform fee that the company charges its user for using the platform.

For example, a user places a Rs 100 bet, and the platform charges a 15 per cent platform fee, the GST would be charged on Rs 15, implying a GST of Rs 3.75.

On the other hand, the GST rate implemented on Wednesday would mean that GST is applied on the entire bet that the user placed. For example, if a user places a bet for Rs 100, the 28 per cent GST would apply on the entire value, which means that the actual bet would be Rs 72.

Winners would make less money from bets, and would again have to pay a flat 30 per cent tax deducted at source on the income irrespective of tax slabs.

Quite clearly, taxation on the pot would ultimately lead to lower earnings for winners when compared to taxation on GGR or on the winner’s income. Hence, online gaming companies are vehemently against the move.

Will The GST Change Really Affect The Industry?

It is true that some larger, professional players might shift to illegal platforms or offshore platforms that offer better odds, without any of the associated taxes.

However, it is unlikely that smaller users who play these games using smaller amounts would back out completely.

In addition, head to head games that have a smaller payout might see an larger adverse impact compared to the mega contests that promise monetary rewards running into crores for the top winners.

For a large number of amateur players, it is the lure of a dopamine hit and the large promised reward (relative to the amount bet) that attracts them to the game.

Hence, in terms of numbers, it is unlikely that the numbers would drop of significantly for major mega contests. Nevertheless, from the platform’s perspective, it is possible that a small number of high rollers account for a significant portion of revenue and profitability — which could explain their vehement opposition to the current GST rules.

Globally, countries have shifted away from charging GST on the value of the entire pot, including countries like France and UK. The UK saw a boost in consumer engagement, and creation of new jobs in the sector with offshore platforms relocating to the UK.

Similarly, when France applied GST on the total money bet by players, it saw users move away to offshore platforms and the use of illegal betting platforms to circumvent the rules.

The US charges GST on the winnings, and not on the total consideration. So far, the Indian government has been quite progressive regarding the real money gaming business.

However, the change in GST could have an adverse impact on both the online betting industry and the investor sentiment, since investors could see this as a sign of inconsistent policymaking.