In a fresh development, the government of India has proposed a whopping 28% GST (Goods and Services Tax) on online games that involve real money (in other words, online gambling platforms such as sports betting, online casinos, and slots). It’s important to note, however, that the new tax rate is not going to impact the taxation on e-sports and video games that are purely for entertainment purposes.
The move by the government aims to establish a clear distinction between gaming for entertainment and pay-to-win games that involve monetary games.
The divergent taxation paths are a welcome step and will not unnecessarily burden gamers or gaming enthusiasts who are not actively betting for money.
E-sports, including popular titles like FIFA and League of Legends, as well as leading games on platforms like PlayStation, Xbox, and Nintendo, will continue to be taxed as they have been, at an 18% GST rate. Prominent companies like Microsoft and Activision Blizzard offer such games without any betting or gambling component, ensuring they remain unaffected by the new tax.
On the other hand, the 28% GST will be solely applied to pay-to-win games, including fantasy sports, rummy, and poker, which have the potential for monetary gains. This clear differentiation is a welcome step to avoid confusion within the gaming industry.
The government is in the process of establishing detailed rules that will provide a framework to distinguish between games or sports involving monetary gains and those intended purely for entertainment. The framework will specify terms like online money gaming' and clarify what falls under this category.
When will the taxation kick in?
The GST Council, in its latest meeting, decided to impose a 28% tax on the total bet placed at the entry level for each gaming session starting from October 1. This move comes after top players in the video gaming industry approached the finance ministry, seeking a clear demarcation between e-sports and gambling-related activities.
Gaming concerns
Online gambling is a vast field and many concerns need to be addressed. Representatives from various gaming entities raised concerns about the unintended association between e-sports and gambling.
With approximately three to four billion gamers globally for video games and e-sports, it's crucial to create a clear distinction between the two. E-sports have already been recognized by the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, and similar recognition should be extended for taxation purposes.
Legally, what is online money gaming?
The new rules introduce the definition of online gaming, including "An offering of a game on the internet or an electronic network and includes online money gaming." "Online money gaming" is likely to be interpreted as games where players pay or deposit money or its equivalent, including virtual digital assets, with the expectation of winning money.
This differentiation in the GST law will allow the gaming industry, where no money winnings are involved, to continue paying tax at 18%, similar to any other online portal.
Union Finance Minister Nirmala Sitharaman has indicated that these provisions will likely be discussed during the ongoing parliamentary session, emphasizing the urgency of states amending their laws for timely implementation.