IndiaTech urges Ministry of Finance to tax online skill games at 18%


“Skill-based online games should be treated differently from gambling, betting and horse racing,” reads a letter sent by IndiaTecha tech industry association representing Indian mainstream internet start-ups and investors, has made recommendations it would like the Ministry of Finance to consider when developing a framework for gambling online address.

The industry body requested clarification that Rule 31A of the CGST rules 2017 will not cover games of skill. The rule states that the taxable amount will include the face value of the whole bet, including the winnings.

Further, he recommended that the rule not be applicable to any form of online gambling where there is a preponderance of skill over chance, thus effectively covering online fantasy sports. Dream11 and MPL are two of the prominent members of IndiaTech.

IndiaTech is an influential body comprising some of the biggest start-ups present in India. There has been a lot of talk about how to regulate online gambling which has flourished in recent years. It should also be noted that the budget for 2022-23 will be unveiled next week.

Recommendations made by IndiaTech

Assessing an Actionable Claim

The association wants the Ministry of Finance to consider only gross gaming revenue (GGR) or platform fees as the value of the offer, continuing the current practice.

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“Additionally, if there are other revenue formats/models followed by platforms such as subscription fees, in-game revenue, etc., in such cases GST should not be applicable. only on the amount received by the platform for providing its services and no GST will be charged on the prize pool which is retained for distribution among players,” reads the letter – parts of which have been reviewed by MediaNama. .

He held that the prize pool money is an actionable claim and that the activity or transaction relating to that claim cannot be considered either a supply of goods or a supply of services and, by therefore, is clearly exempt from the GST levy.

18% as tax rate

The body wrote that games involving a predominance of skill “should ideally be taxed at 18% on the applicable platform fee for entry 998439 as ‘Other Online Content Not Elsewhere Classified’ (NEC).

What is 998439? This is a service code that includes games intended to be played over the Internet such as role-playing games (RPGs), strategy games, action games, card games, children’s games . This does not include online gambling services (999692).

“Higher tax rates will negatively impact industry growth,” the letter warns. He cited examples of countries like the UK and the US taxing the GGR at the rate of 15% to 20%.

The GST Council formed a group of ministers last year to deal with issues related to the online gambling sector for tax purposes, according to Economic period. The GoM would offer recommendations on the GST rate for online gambling in addition to determining whether GST is applicable on the total value of the transaction or on the net commissions (revenue) that are earned by gambling companies, added AND.

The GoM has yet to submit its recommendations to the GST Council, the report revealed.

Invoking Rule 31A

The letter explained that “the owner of the technology platform has no right, title or interest in the amount of the prize pool”. He added that the amount is received and held by an independent third party/custodian for and on behalf of the players in some cases.

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“Therefore, the kitty is not part of the value of the services provided by the platform, and therefore, no GST is paid by the technology platform on the kitty since it has no right to the amount,” the letter said.

The letter argued that Rule 31A applied strictly to the provision of actionable claims in the form of a chance to win in betting, gambling or horse racing.

“Primarily chance-based activities and contests, such as betting, gambling, lotteries, and horse racing, have been treated as a class unto themselves and distinct from skill-based games. Given that Rule 31A uses the word “luck” before describing betting activity, gambling is covered there, so it is clear that the rule is intended to apply only to gambling-based activities and contests. chance and does not cover online gambling based on skill,” the letter argued.

IndiaTech calls for national gaming framework

The association had sent a letter to the Indian government last year asking it to come up with national-level online gambling guidelines for states to follow. India Tech. She had claimed that some online games have an element of skill despite the involvement of money, distinguishing them from betting and gambling.

“The mere involvement of money does not turn any game into an addictive or gambling genre,” reads the letter to IT Minister Ashwini Vaishnaw.

The industry body called on the government to refer to the following principles when drafting online gambling legislation:

  • Derived from real-world games and recognized/unrecognized sports, and played with real players.
  • Played for leisure and not as a profession or for a living. These games are played for entertainment, to release stress, and for social interaction.
  • Run for short intervals of around 5-10 minutes for each game session, making them non-addictive in nature.
  • Involve meager monetary contributions that do not correspond to gambling or betting.
  • Exist on digital platforms that have reasonable control over an individual’s gaming accounts, especially around daily/weekly game time limits, deposit limit and withdrawal limit.

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