Right decision on taxing online gaming: Financial express 19th July 2023

The decision taken by the CBIC/GST Council to tax online gaming by 28% is most appropriate as it brings in a level playing field with other similar activities. In fact, it corrects an anomaly in the existing system. The industry is definitely not pleased with this move and believes that this can hinder the growth of the sector and also keep FDI out. The argument has also been extended to highlight the possible loss of employment on this score. Hence, as usual, there are two diametrically opposite views here—one based on rationale and the other more on emotion.

Online gaming is like any other recreational activity with stakes involved. The government has clarified that in case there is no money involved, there would be a lower level of taxation. In case one can make money either through perceived skill or pure luck, it qualifies as gambling and is liable to this levy. Earlier, the gain was being taxed at 30% while the gross gaming revenue (GGR) was taxed at 18%. But now, the sum that is being put on the table would be liable for the 28% levy. Curiously, this holds for other recreational activities presently.

IPL tickets are subject to 28% GST as it is organised by private organisations. This has not come in the way of people watching the matches. Therefore, it is pertinent to note that the tax will be paid by the customer. Even if it is argued that it is not gambling but a game of skill, there is a parallel here. By not taxing gaming at 28%, the IPL followers could have argued for a rollback.

The imperatives for the government to act the away it did are worth examining, to begin with. First, there needs to be a level playing field across the sector and there should be no distinction for activities which involve betting—horse riding and casinos also fall in this ambit.
Second, the policy so far has been to tax sin products at a higher rate. As gaming is analogous to the same, it should be taxed at a higher rate. Such games become addictive and, hence, if a higher tax acts as a deterrent at a lower level of income, then it is beneficial for society. At higher income levels, this tax may not really matter—there is a moral issue here.

Third, the government has progressively been trying to plug all the loopholes when it comes to black money. This measure can be seen as an extension of the same, where activities that got away under the camouflage of being skill-oriented are targeted. It is hard to be convinced that that selecting a team which performs the best before a cricket match is played is a game of skill.

Fourth, last year, the government brought cryptocurrency under the tax fold. This was a progressive move as a lot of unaccounted money was channeled through crypto exchanges based in other countries. Getting these companies under the fold seems to be in order. Even the introduction of the tax collected at source rule was another attempt to ensure there is an audit trail over forex expenses.

Last, presently, only the platform fee is taxed at 18%, and as stated by the GST Council, it comes effectively to 3%, lower than the tax rate on essential goods. This is a major anomaly in the tax structure as the two cannot be equated.

The revenue gain for the government would be around Rs 20,000 crore. But as stated by the government, the argument is more on moralistic grounds of curbing gambling, especially by people who do not have the monetary wherewithal to bear losses.

The industry view is at the other end. Being used to preferential treatment on account of not being on the radar so far, the argument is that the tax is a big blow for its sustenance. A lot of investment has already been made in the infrastructure which will now get wasted progressively. As this industry attracts FDI, this will ebb. The initiative taken at creating these new startups will be pushed back significantly.

It has been seen that tax rates are rarely a deterrent to consumption, as seen for other sin products. It would, however, check bets taken by participants at the lower income levels, where their households can be in jeopardy. There is larger participation for online games compared to casinos and horse racing, considered to be elitist. This explains that the apprehension expressed by the industry is more of an immediate emotion.

When GST was introduced, it was understood that there would be fine-tuning with time. New activities that were not significant have come to the forefront, which deserve reviewing. This is what has happened to online gaming. The issue of the levy being prospective or retrospective is relevant as ideally, all such measures should apply to the future. But if it is a case of the present levy being a clarification rather than a new measure (which is what has been said), then probably the courts will have to come in. But overall, this strikes a right balance and looks at the broader picture.