Industry body recommends GST should only be applied on platform fee of skill-based games

Real Money Despite appeals from stakeholders, gaming as a segment has yet to see a nationwide standard framework with defined regulations. Every day, fresh proposals and laws to regulate, support, and safeguard the nascent but fast-moving online gaming business are added to its arsenal.

Indiatech.org, an industry group representing tech start-ups, has proposed to the GST council's GoM (panel of State ministers) that GST be collected only on the platform fee charged by online skill-based games and not on the overall prize pool money.

In most real-money games, participants must pay an entrance fee in order to participate in a gaming tournament, and the total cash collected throughout this process is referred to as the prize pool money. This pooled sum is then given as prize money to the players, and the firm receives a percentage (4-20%) of this amount as a platform fee.

The industry body demanded that a suitable clarification be issued that Rule 31A is not intended to cover games of skill and thus is not applicable to any form of online gaming where there is a preponderance of skill over chance (thereby covering online fantasy sports as well as online skill-based casual games and sports).

Different companies have different models of prize pool money

The prize pool money is held in various ways by different firms. In certain situations, the money is received and kept on behalf of the participants by a third party, who subsequently distributes it to the winners according to the terms of the game. In other situations, the third party is a financial service provider, such as a bank or digital wallet, which facilitates the transactions and charges a commission.

It is important to clarify that the owner of the technological platform has no right, title, or interest in the prize pool amount, according to Indiatech.

This distinction is essential since “100% of the face value of the bet or amount put into the totalisator” is evaluated for GST in the situations of lottery, betting, gaming, and horse racing.

GST should be applicable on only the amount received by the platform

The industry organization emphasized that if a gaming company's business model comprises a membership fee, in-game earnings, and so on, GST should only be applied to the amount collected by the platform. They have also suggested that skill-based games be taxed at 18% of the platform charge, as higher tax rates might have an influence on the industry's growth.

The All India Gambling Federation (AIGF) and consultancy company EY presented their suggestions on the GST rate for online gaming earlier this year in a study titled ‘Online Gaming in India – The GST Conundrum.'

The joint study explicitly warned that collecting GST on the whole share value might cause firms to suffer to the point of closure. While most industry participants charge a platform fee ranging from 4% to 20%, any effort to collect GST on the full stake value will render the business model unviable and cause the closure of firms, according to the joint study.

According to the study, the GST rate for the online gaming industry should be 18%.

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