• Notification Date: 22-06-2023
• Notification No: N/A

GST Council may Consider Defining Online Gaming to Resolve Tax Stalemate

The Goods and Services Tax (GST) Council, which is likely to discuss the Group of Ministers’ (GoM) report on online gaming at the former’s next meeting, is likely to suggest defining online gaming, casinos and horse racing as a clarification in law for their transparent taxation, a senior government official said. 

The GST Council next meeting is likely to be held in last week of June or early July. 

“A clarification in the tax law will be enough. Definition is important for taxability. A distinction will have to be made for online gaming, games of chance and games of skill. It’s a very nuanced distinction. We need to lay down definitions properly for online gaming,” the official told Moneycontrol. 

“It’s up to the GST Council. The stalemate has to break,” he added. 

The GoM, led by Meghalaya chief minister Conrad Sangma, could not arrive at a consensus when it submitted its report in December and held to its earlier position of 28 percent tax rate on the full value, including winnings. 

Actionable Claim vs Delivery of Supply of Services 

“The tax rate of 28 percent is not an issue. The question will be whether online gaming is defined as an actionable claim or supply of service. Defining it as an actionable claim will make it ‘goods’, which means the entire value, including winnings, will come under GST. If it is defined as supply of service, it will be on face value, excluding winnings,” he said. 

According to the GST Act, an actionable claim is a claim to any debt. 

“It’s a fairly complex legal problem. The law needs to define online gaming as a supply of service to exempt winnings from GST. The Supreme Court has determined it as an actionable claim. The legal position, which is also a part of the GoM report, will be placed before the GST Council,” he said. 

“We have to take a call on how online gaming will be defined. If it is termed as part of actionable goods, it will be very challenging for the industry because winnings come from the entry fee. So we have to define it properly,” he added. 

In many online games, players pay small amounts to participate, which collectively forms a prize pool from which the gaming platform takes commission. Currently, 18 percent GST is paid on the commission, whereas the GoM report has proposed to treat the prize pool as an actionable claim and levy GST on it. 

Differing Positions 

Globally, each country has a different position on gambling and the gaming industry. Countries like Qatar have banned gambling. In India, different states have different legal positions. Sikkim, Nagaland and Meghalaya have gaming laws and licensing regimes. Goa and the Union Territory of Daman and Diu regulate casino games. 

Very few states have declared gambling as legitimate. In states where gambling is not legal, they suggest taxing the winnings as well. 

Currently, online gaming platforms pay 18 percent GST on entry fees and not on the full value, including prize money. All casino earnings and horse racing are levied a flat 28 percent GST.