Context
- The ministerial panel formed under the Goods and Services Tax (GST) regime for casinos, racetracks, and online gaming is likely to reiterate its earlier stance of a uniform 28 percent tax rate for the three categories.
- Currently, online gaming platforms pay 18% GST on the platform fee alone, rather than the total value including prize money; however, the GST Council will make the final decision on the valuation mechanism.
- This is because the panel members disagreed on whether it should be levied on the platform fee or the total amount paid by the participants.
Relevance
GS Paper – 3 GST and taxation, IT & Computers, Cyber Security
Mains Question
What effect does gaming addiction have on children? Do you think China’s recent three-hour gaming ban is a good way to deal with it? (150 words)
Types of online gaming available in India:
- e-Sports: These are video games that, in the 1990s, were played privately or on consoles in video game stores, but are now played online in a structured manner between professional players, either individually or in teams.
- Fantasy sports: These are games in which the player chooses a team of real-life sports players from a variety of teams and earns points based on how well the players perform in real-life. As an example,
- Casual online games:
- These could be skill-based, with the outcome heavily influenced by mental ability, or chance-based, with the outcome heavily influenced by some randomised activity, such as rolling a die.
- Gambling is defined as a game of chance in which players bet money or anything of monetary value.
India’s online gaming market
- During the Covid-19 pandemic, the online gaming industry grew at an exponential rate.
- According to a recent EY and Assocham study, online gaming currently contributes more than Rs 2,200 crore in GST.
- According to a KPMG report, the online gaming sector is expected to grow to Rs 29,000 crore by 2024-25, up from Rs 13,600 crore in 2020-21.
Online gaming sector: Challenges
- Lack of regulatory oversight: o Online gaming exists in a regulatory grey area, with no comprehensive legislation governing its legality or boundaries.
- Additionally, there is no regulatory framework in place to govern various aspects of online gaming companies, such as having a grievance redressal mechanism, protecting data and intellectual property rights, and prohibiting misleading advertisements.
- Online gaming is a state subject (Under Entry 34, List II ‘Gambling’ and ‘Betting’): o However, state governments have stated that some restrictions, such as geo-blocking specific apps or websites within their state’s borders, are extremely difficult for them to implement.
- Furthermore, unlike the Centre, state governments lack the necessary blocking authority to issue blocking orders for offshore betting sites.
- There is also concern that legislation passed in one state may not be applicable in another, leading to inconsistency across the country.
- Societal concerns: o There have been several reported incidents of people losing large sums of money on online games, resulting in suicides in various parts of the country.
Background
- An eight-member ministerial panel led by Meghalaya Chief Minister Conrad Sangma had previously submitted a report to the Council, which was discussed at the June meeting.
- It had proposed a uniform rate of 28% on casinos, racetracks, and online gaming, with no distinction made based on whether an activity is a game of skill, chance, or both.
- According to the GoM, casinos pay the full 28% GST on betting and gambling.
- However, the online gaming industry does not pay the same because online games are actionable claims in addition to betting and gambling.
- As a result, the GoM believed that taxation should be uniform.
- The GoM also discussed whether these activities should be taxed on Gross Gaming Revenue (GGR) or net value, and how to calculate GGR or net value.
- However, no agreement was reached on this point.
The position of the gaming industries on this issue
- The industry has argued that if betting and gambling are taxed at their full value, organisers will be forced to pay out of their own pockets.
- It has also stated that as the share of taxes increases in the bet amount, the prize pool amount decreases, and thus the winning amounts decrease.
- This, in turn, may discourage players who will have an impact on trade volumes.
