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5 reasons why online games of skill cannot be taxed like casinos and lotteries

By June 28, 2022October 4th, 2022Online games

While the GST Council is supposed to take action to tax online gambling at the same rate as gambling, here’s a list that breaks down the practical differences between the two, explaining why they shouldn’t be lumped together.

As an industry that has forayed into the big leagues over the past decade, online gambling is now experiencing multiple issues. On the one hand, the central government has taken steps to address the concerns of major industry players and users by appointing an interdepartmental task force to develop progressive regulatory frameworks for transparent operation and robust growth of industry. On the other hand, it is assumed that the GoM recommended levying 28% GST on the entire contest entry amount for online gaming platforms and treated it at the same level as casinos. and lotteries, i.e. betting and games of chance.

This can prove counter-productive for the industry which is otherwise plagued by prejudices resulting from misconceptions about the definition and functionality of online games. The GoM seems to have completely ignored the legal status and/or judicial recognition given to online games of skill by equating or clubbing them with betting and gambling.

The online skill games industry therefore deserves a pragmatic, globally widespread and progressive tax regime that recognizes the functionality of the industry in its own light. Mentioned below are factors that depict a concrete and meticulous difference between online skill games and gambling and casino games, and why the two cannot be lumped under a common umbrella.

Legal status

Several landmark Supreme Court judgments have emphasized the legal validity of online games of skill. Following these judgments, the High Court also upheld the legal status of online games of skill. With this in mind, online skill game companies comply with the rules currently in place. Lotteries and casinos, as well as games involving betting and wagering, fall legally within the realm of gambling, betting or betting. Online games of skill have even been protected by Article 19(1)(g) of the Constitution of India. Therefore, these online games of skill should be treated differently from online games of chance like lotteries and casinos.

Business legitimacy

As mentioned above, since online games of skill have been deemed legitimate by the Supreme Court of India and protected under Article 19(1)(g) of the Constitution of India , this confirms the legitimacy of their activity. Gambling operations such as lotteries, casinos, etc. are considered res extra commercium, meaning they do not have the constitutionally guaranteed right to trade and profession like online games of skill.

Operational method of transaction

Online skill games have a transparent and well-defined execution format. Players pay a participation fee to participate in the contest. These participation fees have two components. The first element is the platform fee which is retained by the platform operator. The second element is the prize pool money which is collected in a trust account held by the platform operator, which is ultimately distributed to the winners once the contest is over. Online games of chance, on the other hand, have different systems in place, depending on the game. The lottery encompasses a distribution system in which participants pool money in the form of tickets, and this is awarded to winners based on chance alone. Casino games reap revenue from all amounts wagered in the casino, after paying winners their spoils of victory. Casinos must pay tax on the initial deposit, while the proposed 28% GST levy on online gambling would mean that gaming platforms would have to pay tax on the full consideration each time a user participates in competition. Such taxation on online gaming, which is effectively a mass entertainment medium that spans over 40 million users across different demographics, is likely to put the entire industry on its feet. on par with casinos which is only available to a few wealthy individuals and available only in a few Indian states.

Means of transaction

For skill-based online games, transactions occur through the digital operating platforms themselves. With technology, all platforms are evolving to strengthen their transactional portals and increase security, in order to curb possible frauds or scams. Since the means for transactions are online, there are records to save all relevant data and information about each transaction. Physical formats lack it, especially in lottery or casino games.

Determination of value

Given the digital nature of all transactions for online skill games, all records can be tracked. This makes the value of the offer in such a business easily determinable. For other formats in this regard, especially physical ones in terms of lotteries and casinos, it is nearly impossible to track every transaction or record that takes place. This amplifies the difficulty of recording the value of the offer.

If the misguided and unsequestered notions of various state governments on online gambling are used as the basis for establishing policies for this sector, the ensuing outcome would be detrimental and possibly fatal to the growth of this sector. nascent. For example, higher taxation could discourage FDI by introducing new barriers to entry and the overall development of this sector would come to a screeching halt, contradicting the government’s vision that India would become a hotspot. global hub of the game given its potential for job creation and income. Thus, it is necessary for the authorities to recognize these differences when designing any type of measures relating to this sector, from fiscal policies to regulatory policies.



The opinions expressed above are those of the author.