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Wednesday, February 1, 2023

Budget 2023: Online Gaming Industry Seeks Lower GST, Clarity On Regulation

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A tax rate of 28% could be detrimental to the growth of online sports, industry insiders said. (File)

New Delhi:

The Union Budget 2023-24 is set to be presented by Finance Minister Nirmala Sitharaman on February 1. The online gaming sector, which has witnessed significant growth in the past few years, expects favourable moves, especially in terms of taxation in the upcoming budget.

With a boom in online gaming in India, the government has recognised gaming as a legitimate sport. In December last year, esports was integrated with mainline sports disciplines in India by the government. It was recognised as a part of a multisport event and came under the ambit of the Department of Sports under the Ministry of Youth Affairs and Sports.

The Ministry of Electronics and Information Technology (MeitY) was appointed as the nodal ministry for online gaming.

The online gaming industry has long pending demands for the correction of GST(Goods and Services Tax) anomalies imposed on the industry. The industry leaders have been pleading with the government to levy GST at 18% instead of raising it to 28% for online gaming. Online gaming companies have also requested the government on several occasions to apply GST only on the platform provider’s commissions rather than the total prize money.

In December 2022, the Finance Ministry clarified that actionable claims arising from betting and gambling, including those arising from online gaming, would attract GST at 28%. The ministry also said that for GST there is no differentiation between games of skill and games of chance.

According to industry voices, the online gaming sector has been witnessing an upward movement, and a higher tax rate at 28% could be detrimental to the rapid growth. The industry expects some sops on taxation and clarity regarding GST in the upcoming Budget.

It is worth noting that in October 2022 GamesKraft, a Bengaluru-based online gaming company, challenged a Rs 21,000 crore GST notice in Karnataka High Court.

However, in the last few years, several states have tried to ban online games that involve prize money. In 2020, Andhra Pradesh passed the Gaming (Amendment) Bill 2020 to ban online games. It had come after some youngsters died by suicide in the state due to debt they incurred while playing online games.

The Tamil Nadu government had sought a similar ban on online rummy and poker played with stakes by amending the Tamil Nadu Gaming Act. However, the Madras High Court, in August 2021, struck down the ban saying that it was excessive and disproportionate.

Later the same year, the Kerala High Court termed online gaming, played with or without stakes, as “a game of skill” and set aside a notification by the state government banning online games involving money.

In another instance, the Karnataka High Court held that amendments made to the Karnataka Police Act, 2021, to ban online gambling were “unconstitutional”. The government had prohibited and criminalised games of skills that included online games. But, the petitioners argued that the games such as rummy, poker, and chess are games of skill and court orders in the past have highlighted distinction between games of skill and games of chance.  

The government recently introduced draft online gaming rules. It proposed a self-regulatory mechanism, physical Indian address, and mandatory verification of players for online gaming companies.

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