Taxation: The right bet on online gaming

Written by Malay K Shukla

The Group of Ministers for Casino, Racecourse and Online Gaming (GOM) called for the first meeting earlier this month to consider the rates and procedures for levying Goods and Services Tax (GST) on these industries. GoM members have since said through various external interactions that both key aspects of their recommendations have been discussed in advance, and that they will probably reach a consensus when they meet again next week.

While this is a somewhat broad array of industries, a certain group of people in the tenterhooks are members of the sunrise sector of online skill gaming who offer a set of games like Rami, Poker, Chess, Fantasy Sports, etc. that require skill predominance, and therefore gambling. No.

Online skill gaming is legally classified as a legitimate business activity and operates on a platform fee model, where a fee is charged to facilitate the playing of these skill-based games among actual players. These fees range from 10-20% of the total face value or bet amount, using platforms to provide these players with a secure and reliable gaming ecosystem.
Since the beginning of the GST regime, the provision of services created by online managed games has been categorized under entry 998439, ‘other online content is not classified anywhere’. Under this classification, these platforms are currently paying GST at the rate of 18% Gross Gaming Revenue (GGR), or the value of consideration that these companies provide to provide a platform for players to engage with each other and test their skills.

It has been consistent with best practices from around the world; Experimental data from the mature gaming market in the West shows that taxing GGR between 15-20% has achieved optimal tax revenue and ensured maximum level of compliance by operators – resulting in keeping most gaming businesses within regulatory framework.

A report by Copenhagen Economics states: “We further conclude that the tax rate should not exceed 20%. The reason is that at higher tax rates, gaming operators as well as consumers will choose not to join the licensing system.

The report shows how France, which has a very high tax rate on GGR (around 37% on online poker and 45% on sports betting), earns only 41% of the UK’s per capita tax revenue, which is taxed by GGR. 15% tax on.
The report shows that as tax rates have risen beyond this limit, channeling rates (players’ consent rates and platforms with legitimate regulatory frameworks) and tax revenues have declined significantly, depriving the government and players of revenue in a safe and legal way. Play skill games.

Any move to change the valuation basis from GGR to face value or total bet would be primarily contrary to the basic principle of the Central GST Act, which was intended to impose tax only on the consideration charged for services rendered, not complete. The amount collected in the pool which was always the players.

In practice, such measures are sure to stop a scream of legitimate operators in the industry. GST on face value, on paper, would translate into a 900% increase in current taxes, but, in reality, it would only lead to the off-radar black market expansion of offshore-based operators and significantly reduce tax collection. In addition, players will come in contact with unscrupulous ‘fly by night’ operators who operate in the gray area and pay little attention to responsible activities, often manipulating opportunities / playing unfair games behind skill games.

The detrimental effects of excessive taxes are felt in every industry, but for internet-based activities it can be even greater because barriers to illegal entry are so low, and laying a foundation abroad can also give a sense of immunity.

Often, such activities can facilitate money laundering and similar financial fraud.

As we approach the GoM meeting, industry, players and investors who have secured the sector with 2.1 billion in funding over the past few years will be anxious, anxious, but confident in GoM’s efficiency and vision. With a taxation framework that has enabled a sunrise sector that has shown tremendous potential in the last decade.

(The author is the chief legal and compliance officer at Games 24 * 7. The opinions expressed are personal and not necessarily those of Financial Express Online.)