Online Games – GoM Expectations – Taxation

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India: Online Games – GoM Expectations

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The Group of Ministers (GoM) formed by the GST Council on May 24 to consider the dual issue of the classification and valuation of online games, racetracks and casinos, is expected to submit its report to the GST Council by next month. The final decision will be made by the board at its next meeting thereafter.

Regarding the GST rate, the GoM is likely to recommend a single GST rate for all kinds of games and that too in the highest rate of 28%. The idea here is that a single rate structure will end confusion over the classification of games – whether it is a ‘skill game‘ (currently taxed at 18%) or a ‘ gambling ”(currently taxed at 28%). The industry accounted for an 18% lower GST rate, however, it appears the GST Council wants to bring all online gaming to the highest tax rate of 28%.

The other major issue that GoM is looking at is the valuation aspect of online games. Currently, the industry pays GST on the “platform fees” charged by the gaming platform, from the money collected from players participating in the game. Whereas the department had issued notices to the platforms -forms of games requiring a tax on all money in the pool. The argument of the gaming platform is that the money pooled by players is like claimable receivables and therefore is neither a supply of goods nor a supply of services in accordance with the entry 6 of Annex III of the CGST law. This view was also debated in the Bombay High Court and the High Court had accepted the same. But the Indian Union has filed a petition for review against this judgment, which is currently pending.

If indeed the GST Council intends to tax all of the GST pool money, then an exception should be created for the aspect of actionable claims under the GST. Schedule III of the CGST Act, by way of an amendment to the GST Act. Given that the case is already pending before the courts, it would be necessary to see how the GoM will make a recommendation on the way forward on this aspect.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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