In News:

• The ministerial panel formed for casinos, race courses and online gaming under the Goods and Services Tax (GST) regime is likely to reiterate its earlier stance of a uniform 28 per cent tax rate for the three categories.
  • Currently, online gaming platforms pay 18 per cent GST on platform fee alone, and not on the full value including prize money.
• The final call about the valuation mechanism, however, will be taken by the GST Council.
• This is due to the fact that the panel members have differed on whether it should be levied on the platform fee or the entire amount paid by the participants.

What’s in today’s article:

• The online gaming in India – Type, market size
• News Summary

The online gaming market in India:

Types:

• e-Sports: These are video games that were played privately or on consoles in video game stores in the 1990s, but are currently played online in a structured manner between professional players, either individually or in teams.
• Fantasy sports: These are games in which the player selects a team of real sports players from several teams and earns points based on how well the players perform in real life. For example,
• Online casual games:
  • These could be skill-based, where the outcome is heavily impacted by mental or or chance-based, where the outcome is heavily influenced by some randomised activity, such as rolling a die.
  • A game of chance may be considered as gambling if players bet money or anything of monetary value.

Online gaming market in India

• The online gaming industry grew exponentially during the Covid-19 pandemic.
• Online gaming currently contributes more than Rs 2,200 crore of GST, as per a recent study by EY and Assocham.
• As per a KPMG report, the online gaming sector would grow to Rs 29,000 crore by 2024-25 from Rs 13,600 crore in 2020-21.

Challenges faced by online gaming sector:

• Lack of regulatory oversight:
  • Online gaming exists in a regulatory grey area and there is no comprehensive legislation with respect to its legality or its boundaries.
  • Also, there is currently no regulatory framework to govern various aspects of online gaming companies such as -
    • Having a grievance redressal mechanism, Protection of data and intellectual property rights, and Prohibiting misleading advertisements.
• Online gaming is a state subject (Under Entry 34, List II 'Gambling' and 'Betting'):
• However, state governments have stated that it is extremely difficult for them to implement some restrictions, such as geo-blocking specific apps or websites within their state's borders.
• Also, state governments (unlike the Centre), lack the necessary blocking authority to issue blocking orders for offshore betting sites.
• There is also concern that legislation passed in one state may not be relevant in another, resulting in inconsistencies across the country.
• Societal concerns:
  • A number of reported incidences of persons losing big amounts of money on online games, resulting in suicides in various parts of the country.

News Summary

Background:

• The eight-member ministerial panel headed by Meghalaya Chief Minister Conrad Sangma had earlier submitted a report to the Council which was taken up for discussion in the June meeting.
• It had recommended a uniform rate of 28 per cent on casinos, race courses, and online gaming with no distinction based on whether an activity is a game of skill or of chance or both.
  • The GoM had observed that casinos pay full GST of 28 per cent on betting and gambling.
  • However, the online gaming sector does not pay the same on the ground that online games are actionable claims other than betting and gambling.
  • Thus, the GoM felt there should be uniformity in taxation.
• The GoM also discussed whether these activities should be taxed on Gross Gaming Revenue (GGR) or net value and to come up with a mechanism of arriving at GGR or net value.
• However, no consensus was achieved on this issue.

Stand of gaming industries on this issue

• The industry has argued that if betting and gambling are taxed on full value, the organizers will have to pay from their pockets.
• It has also said that if share of taxes increases in the bet amount, the prize pool amount shrinks, and therefore, winning amounts become smaller.
• This in turn may discourage the players that will affect the trade in terms of volumes of trade.