The GST Council is scheduled to meet on August 2 to decide on draft rules for taxing online gaming, casinos, and horse racing. If the proposed 28 percent tax on online gaming is implemented, India could join countries with the highest taxes in this domain. However, gaming companies argue that these games involve skill, not just chance like gambling and casinos, and should be treated differently. Their main focus is on highlighting the skill-based nature of these games to support their case.
At the moment, online games operate either on the rake fee model wherein the gaming platform charges a rake fee (which is generally close to 10 percent of the money a player puts in for a game) for facilitating the play of games and an 18 percent tax is applicable on this rake feel in addition to the 30 percent TDS that is calculated on winning amount.
How taxes compare
However, what the new taxation would do is it would not just push the GST rate to 28 percent but this will also be charged on the full face value or on the entire amount one puts in a game.
A report by EY in 2021 highlights some of the taxation rates followed across global markets. The UK, for instance, follows a rake fee based model taxed at 21 percent. Pennsylvania, US, also follows the same model and the taxes are 14 percent on online poker and 15 percent on fantasy games. Belgium, Denmark, Sweden and Germany also follow the rake fee based model and are taxed between 11 percent and 19 percent. Countries like South Africa, Singapore and Australia that levy taxes on deposits have tax rates between 7 percent and 15 percent. All less than India.
Illegal market to gain?
As per observations made by a Copenhagen-Economics report on licensing-system-for-online-gambling tax-rate in the space should not exceed 20 percent. “The reason being that at higher tax-rates gambling operators as well as consumers will choose not to join the licensing system. Higher tax-rates would cause consumers to substitute to a significant extent to gambling operators outside the licensing system. The reason being that gambling operators within the system will be less competitive and that consumers largely see these operators as substitutable to operators outside the system,” said the report. This simply means a higher tax rate can push the players towards the illegal market.
This argument aligns with concerns raised by stakeholders in the Indian gaming industry, emphasising the need for a balanced and competitive tax rate to avoid driving players towards illegal platforms.