TIOL Whitepaper Recommends Clear GST Differentiation Between Skill And Chance Gaming

The TOIL whitepaper estimates the size of the Indian fantasy sports market at ₹4,700 for FY2021 and projects revenues to reach ₹9,500 in FY2023.

Union Govt Should Ensure Growth of FDI and Tax Revenues

A recently published whitepaper by Tax India Online (TIOL), a reputed fiscal and monetary policy media, recommends a clear differentiation of GST valuation models used for levying games of skill and for games of chance. This is needed so that the Union Government can ensure the continuous growth of the booming online fantasy sports industry, as well as the growth of Foreign Direct Investments (FDI), job creation and tax revenues coming from the sector, TOIL writes.

Fantasy sports have been driving innovations and foreign investments in the country with the local market having already surpassed the decades-old leader USA. Home to more than 150 fantasy sports operators, including the largest one in the world, and roughly 13 crore players, India has become the biggest online fantasy sports market globally.

The TOIL whitepaper estimates the size of the Indian fantasy sports market at ₹4,700 for FY2021 and projects revenues to reach ₹9,500 in FY2023. FDI attracted by the sector in 2021 were ₹10,000 crore and ₹15,000 crore more are expected to flow in within the next three years. The sector is estimated to be currently providing direct or indirect employment to 3,000-3,400 people, and the creation of 12,000 new jobs is expected to occur within the next two or three years.

The industry’s tax contribution has also been significant, with combined GST, TDS and Corporate Tax payments to the exchequer amounting to ₹1,500 for FY2021 and expected to reach ₹15,000 crore for the FY2020-FY2024 period. Quoted PricewaterhouseCoopers (PwC) data shows projected GST contribution from Indian fantasy sports at roughly ₹3,000 – 3,500 crore for the next five years.

GST on Games of Skill and Games of Chance

As per the current industry standard, as confirmed by an Internet and Mobile Association of India (IAMAI) report quoted by the TIOL white paper, skill gaming operators charge GST of 18 percent over their margins or Gross Gaming Revenue (GGR). This leaves the prize money which is to be distributed among winning players taxable by 30 percent income tax, but GST free.

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Rule 31A of the CGST Rules 2017 which relates to the “Value of supply in case of lottery, betting, gambling and horse racing,” or games of chance in general terms, specifies a GST levy of 28 percent over these supplies.

The whitepaper by TIOL calls for this distinction to be preserved and fixed normatively by the special Group of Ministers (GoM) in order to preserve the sustainability of the industry and ensure its growth.

The ministerial panel was formed in 2021 by the GST Council with the task to examine GST applicability, valuations and rates over gaming and casino online platforms, horse racing and lotteries, and to give recommendations for regulatory changes.

Differentiation between Games of Skill and Chance Needs Categorization Authority

The foundation base of the currently active Indian gambling laws is the distinction between games of skill and games of chance, but the boundary between the two has proven rather vague and there is yet no clear rule or test to differentiate which is which beyond doubt. This definition issue has been subject of various litigations at high courts and at the Supreme Court and there have been numerous calls, including in the Rajya Sabha, for a national-level gaming authority to be mandated to categorize games.

Sensible national regulation over gaming and gambling including the creation of such an authority that can work to examine the gameplay and rules of the various games and categorize them along the skill vs chance distinction can provide much-needed clarity for the public and certainty for the industry stakeholders.

“This authority could be made responsible for the online gaming industry, monitoring its operations, preventing societal issues, suitably classifying games of skill or chance, overseeing consumer protection, and combatting illegality and crime,” writes RS member and senior BJP leader Sushil Kumar Modi following his submission on the subject in parliament.

“This flourishing industry suffers from lack of regulatory oversight,” writes Modi. “Online gaming falls in a regulatory gray area and there is no comprehensive legislation with respect to its legality, or its boundaries with gambling and betting even as the applicable tax rate is being debated in relevant circles.”

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