What is a Game of Skill? How is it different from Game of Chance? Such questions have been in the public domain for a long time. For a number of years, there have been court cases to fight this very difference. A game of skill requires the player to use their knowledge, cognitive skill set and more to achieve the desired outcome while a game of chance is pure betting and gambling. This makes games of skill a popular choice for players who want to test their skills and compete against others for rewards.
On 24 January 2023, the Jaipur bench of the Honourable High Court of Rajasthan once again reiterated the specifics of skill-based games while issuing an order, in favour of Myteam11 Fantasy Sports in a petition filed by them challenging issuance of a show cause notice by the GST Authorities. The GST Department had served a show-cause notice to Myteam11 for recovery of tax dues, alleging that the games were mis-classified as games of skill, and were, in fact, betting / gambling games. The court cited a number of legal precedents from 1996, 2007 and 2019, stating that games covered under these judgments have already been classified as “Games of skill”, and that the show-cause notice to that effect amounts to abuse of law.
Taxation of online skill games in India has been under discussion and deliberation for a long time. The industry currently pays 18% GST on platform fee which is the revenue earned by them which is the trend globally across most countries. There are discussions going on whether the industry should pay GST at 28% instead of the current rate of 18% and whether this tax should be levied on the platform fee or on total amount inclusive of platform fee and prize pool. Paying tax on revenue is a legitimate ask, however, trying to levy tax on the total consideration will lead the industry on a downward spiral. Online gaming is a sunrise industry and putting it in the same bucket as betting and gambling will impede its growth.
In fact, in a whitepaper published by the leading law firm Lakshmikumaran & Sridharan noted that GST on contest entry amount for online gaming is not in line with the international best practices. According to the report, most countries with a thriving online gaming industry such as the UK, the US, Australia and Singapore follow a ‘Tax on Gross Gaming Revenue (GGR)’ model. It also cites examples of countries where high taxation and /or incorrect levy on the contest entry amount (CEA) led to revenue loss for the Government and encouraged the growth of the unauthorised offshore betting and gambling platforms.
The Rajasthan high court’s observation, hopefully will serve as a legal outline for the policy makers, especially for the FinMin as it gears up to propose the final GST structure for the online skill games. Will the anticipated 28 per cent on total consideration amount to abuse of law? Will the policy makers take note of this and adhere to the international best practices from countries that have benefited hugely from a conducive tax regime?