End confusion over taxing online gaming
The GST Council has deferred the discussion on the issue of taxing online gaming once again—this time, the convenor of the Group of Ministers (GoM), which is looking into the matter, is apparently busy with electioneering in Meghalaya. So, a crucial issue, which can make or mar the online gaming industry, is still hanging in the balance. The government must show more urgency in addressing the issue, which has already led to situations where online gaming platforms have been served tax demands of thousands of crores— multiple times the revenue they earned in a financial year.
For quite some time, the government has been delaying the decisions on determining the valuation of the services provided by online gaming platforms and the rate at which they should be taxed. The GST Council formed a GoM headed by Conrad Sangma, chief minister of Meghalaya. It has been almost two years since the GoM was formed (in May 2021). Three main issues need to be decided by the GoM—valuation of the services provided by the platform, tax rates (18% or 28%) and whether online gaming is a game of skill or a game of chance. The GoM is apparently in favour of a 28% tax on the total betting amount instead of an 18% tax on the platform fee. The online gaming industry is distressed by the fact that the GoM is tilting towards taxing the whole betting amount rather than the service fee earned by them. The industry is okay with a 28% tax rate as long as it is levied on only the service fee they charged and not the whole betting amount.
And even as confusion prevails over the taxability of the gaming industry, the tax department has started serving tax demands based on the betting amount. A Bengaluru-based company with an annual turnover of Rs 2,100 crore in FY22 was served a tax demand of Rs 21,000 crore last year. The case is already in the Karnataka High Court. The delay by the government in deciding the issue is not helping the industry, which is hoping for some light at the end of the tunnel. The government might decide to ‘tax’ online gaming heavily, treating it as a form of betting— as it did in the case of cryptocurrencies—but it must take a quick decision on the issue so that online gaming companies can decide their future course of action.