The Indian government will likely tax online gaming at 28 percent under the Goods and Services Tax instead of the current 18 percent. It is also expected to suggest a revised formula for calculating the amount on which the GST would be levied.

Currently, online gaming attracts 18 percent GST, with the tax being levied only on gross gaming revenue, which is the fee charged by online gaming portals.

The Group of Ministers (GoM), chaired by Meghalaya Chief Minister Conrad Sangma, had, in its earlier report submitted to the Council in June, suggested a 28 percent GST on the entire value of the money that a player or a customer puts up, including contest entry fee, without making a distinction such as games of skill or chance. However, the Council had asked the GoM to reconsider its report.

I was following that the GoM took the Attorney General’s views and met stakeholders from the online gaming industry.

Although the GoM deliberated on different scopes and definitions for ‘games of skill’ and ‘games of chance’ and on what basis certain games can be classified as games of skill or games of chance, it finally decided online gaming essentially falls under the category of ‘demerit goods’ and hence should attract a 28 percent GST.

A “demerit good” is a good or service whose consumption is regarded unhealthy, demeaning, or otherwise socially inappropriate due to the perceived negative impacts on the consumers themself.”

The GoM report in June suggested that the GST should be levied on the entire amount received from the players.

Charging 28 percent GST on the entire amount player deposits for a game for both categories of online games would reduce the prize money left for distribution and drive away players. Sector experts said this might encourage online gamers towards unlawful portals that do not deduct tax. Industry insiders fear that a higher rate of tax on the entire amount that players deposit would mean the industry’s death in India as we know it.

Online gaming saw a significant jump in users during the Covid lockdown. As per a KPMG report, the online gaming sector will grow to Rs 29,000 crore by 2024-25 from Rs 13,600 crore in 2021.

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