Unveiled: Legal Specialist Contends 28% GST Imposes a "Penalty" on India's Gambling Sector
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The Indian Supreme Court will take up the hotly contested case on May 5, challenging a controversial 18% Goods and Services Tax (GST) on online real money gaming involving a heavy tax liability of over INR 1,120 crore (USD 13.5 billion).
The argument centers around whether these online gaming platforms, such as Dream11, Games24x7, and Head Digital Works, should be taxed on the total value of wagers or just their gross gaming revenue (GGR). The government, on the other hand, maintains that the tax rate has always applied and that changes made in 2023 simply clarified the law.
Srinivas Kotni, founder and managing partner of Lexport, weighs in on the GST valuation issue, the distinction between skill and chance-based games, and the political implications from this ongoing litigation. In an exclusive interview with SiGMA World, Kotni reveals his legal perspective on the tax issue and its impact on the industry.
Impact of the 18% GST on the Online Gaming IndustryKotni explains, "The 18% GST, which appears to be a rhetorical control measure by the government, discourages investment in the gaming industry, both online and offline. It needs to be reevaluated from an industrial standpoint. Legislation should either outright ban it or provide a more permissive environment."
Government's Likelihood of Reducing the TaxKotni argues, "Considering the government imposed it, I don't think a drastic reduction is likely. There are no concrete indications from the government suggesting a change in the near future."
Implications of Fiscal Policy on India's Global CompetitivenessAccording to Kotni, while India currently dominates the gaming industry, the industry remains stagnant due to barriers imposed, making it challenging for new players to enter the market.
Proposed Industry Changes to GST Framework"Many associations, including the All India Gaming Federation (AIGF), have made representations to the government requesting a more lenient tax structure. However, it seems these inputs are going unheeded." Kotni states.
Expected Reforms Regarding Taxation and Industry RegulationKotni believes that there is minimal hope for tax changes at present, but calls for broader regulatory reform, including industry status for the sector, a central regulatory authority, and clear standards for KYC, among others.
SiGMA World: Does KYC and a gaming regulatory body alone reform the gaming landscape in India, or are other factors necessary?
Kotni responds, "A comprehensive gaming law encompassing all aspects of the industry, both digital and land-based, is needed to liberate the gray market. The sector requires a clear regulatory environment and a moderate tax structure, enabling India to compete on the global stage."
The Future of the Online Gaming Industry in India"It is essential for the government to address both taxation and regulation to revive and nurture the gaming industry in India. The existing tax structure is a death sentence for the industry, potentially driving companies to foreign locations." Kotni concludes.
As the Supreme Court weighs in on this landmark case, the outcome could significantly impact the taxes levied on skill games, the definition of "processable claims," and digital innovation in India. Will the ruling help or hinder the growth of the gaming industry in the country? Stay tuned for the Supreme Court's decision.
The debate over the 18% GST on online gaming indicates a need for the government to reevaluate its impact on the industry, as technology-based gaming platforms may find it discouraging to invest under such a high tax rate.
Furthermore, Kotni suggests that a comprehensive gaming law, encompassing both digital and land-based sectors, could liberate the gray market and provide a clear regulatory environment that encourages India's global competitiveness in the gaming industry.
