The video gaming industry has said the term ‘online gaming’ is a broad and ambiguous term that is causing confusion among gamers, games publishers, international investors and media amid the GST row. Image used for representational purposes only.
| Photo Credit: Special Arrangement

As many as 45 video game companies in India on July 26, 2023, wrote to the Prime Minister’s Office and to the Ministries of Information & Broadcasting, and Electronics & Information Technology, seeking to put distance between themselves and the real-money gaming industry, amid the ‘widespread confusion’ caused by the latter being referred to as ‘online gaming’.

The real-money gaming industry, which consists of fantasy sports, poker, rummy and other such apps where users can deposit money and compete with other users, has been hit with a 28% GST on all deposits, a move that the industry has criticised. Both the government and the real-money gaming industry use the phrase ‘online gaming’.

The video-gaming firms, such as Outlier Games, SuperGaming and Firebolt Entertainment, are now calling for the government to put an end to this confusion. “‘Online Games’ is too broad […] a term and carries a different meaning in Indian jurisprudence compared to the global understanding, leading to confusion among gamers, international investors, game publishers, and media during the GST row,” the firms said in their letter to the PMO, which has been viewed by The Hindu. 

“This confusion has played a considerable part in fuelling the recent controversy on 28 percent GST. What is being called “Online Games/Online Gaming” in India is known as ‘iGaming’ internationally.”

Also Read | The blurred lines between gaming and gambling

“Let me break the bubble,” Chirag Chopra, the Founder and CEO of New Delhi-based Lucid Labs said. “The Indian game industry is more than Real Money Games, and believe it or not, they are here to stay. No matter what they try to tell you on social media, your beloved games will not be taxed 28 percent; that privilege is reserved for … Real Money Games.”

Video games themselves have long been taxed at 18%, and the government has clarified that the 28% GST on deposits for ‘online gaming’ only applies to the real-money gaming industry. The latter industry has fervently opposed the 28% GST that was slapped on deposits, arguing that users would be discouraged from playing if they had to pay 28% over and above what they were playing games like poker with.

Also Read | Explained | Will 28% GST on online gaming affect its growth?  

“The negative sentiments and social stigma towards games involving monetary wagering are unfairly linked to video games in Indian society, leading to misconceptions about our industry’s products and services,” the letter argued before the government.

It’s not just confusion to the general public that is at stake. “International game corporations, publishers and investors are under the impression that the Indian regulatory system does not differentiate between Video Games and RMG/Fantasy Sports (iGaming) and applies blanket regulations to both industries,” the letter pointed out. “This has resulted in hesitation to invest in Indian video game companies and discouraged potential investments, co-productions, and strategic partnerships.”

Union Finance Minister Nirmala Sitharaman with Revenue Secretary Sanjay Malhotra during the 50th Goods and Services Tax (GST) Council Meeting at Vigyan Bhawan, in New Delhi, on July 11, 2023.
| Photo Credit: PTI

The Goods and Services Tax (GST) Council, at its 50th meeting on July 11, reduced or clarified the tax rate on some items ranging from uncooked or unfried snack pellets to special utility vehicles (SUVs), exempted imported drugs to treat cancer and rare diseases, and brought an end to a years-long debate on tax treatment of online gaming, casinos and horse racing.

Whether they involve skill or chance, or both or neither, bets and wagers made on all three activities, will attract a 28% levy and the GST laws will be amended to include online gaming, Finance Minister Nirmala Sitharaman said.

The Council also examined States’ proposals to set up 50 Benches of the much-awaited GST Appellate Tribunals in the country. The government has said that the statutory bodies to resolve mounting GST disputes shall become operational within four to six months, with Benches coming up in State capitals as well as places where High Courts have Benches, to begin with. The Council cleared the appointment and service conditions for tribunal members and the president, which will kick in from August 1.

The first meeting of the Council since February got off to a stormy start. Representatives of States not ruled by the BJP criticised the Union government’s recent decision to bring the GST Network under the purview of the Prevention of Money Laundering Act (PMLA), administered by the Enforcement Directorate (ED). The arguments were led by the Finance Ministers of Delhi and Punjab.

Ms. Sitharaman, who chaired the meeting, said many States had raised concerns about the issue and it was discussed after the listed agenda was concluded. Tamil Nadu, for instance, said that the inclusion of GSTN under the PMLA provisions is against the interests of taxpayers and against the basic objective of decriminalising the offences under the GST law.

Also read | Real money gaming industry reacts with shock to GST on deposits

“As this would affect the dealers across the country, especially small dealers, Tamil Nadu opposes the move,” a press statement from the State government said.

Revenue Secretary Sanjay Malhotra presented an explanation of the new provision to the Council, which he said members seemed “quite satisfied with”.

“This notification has been issued under Section 66 of the PMLA and has nothing to do with the GST law. It has been issued as it is a requirement of the Financial Action Task Force and our evaluation is under process,” he said.

Dispelling doubts that the GSTN is now going to share information about private businesses with other law enforcement agencies, including the ED, Mr. Malhotra said the ED will neither be receiving nor providing information.

“It was also clarified that this notification will empower our tax authorities with more information. The director of the Financial Intelligence Unit will provide information to the GSTN to empower the authorities wherever it feels there is a chance of tax evasion or money laundering; this information can be used as they deem fit,” he said.

The GST rate on uncooked, unfried snack pellets and fish soluble paste was slashed from 18% to 5%, while imitation zari threads or yarn will now attract 5% GST instead of 12%. The Council also decided that food and beverages consumed inside cinema halls shall attract 5% GST without any input tax credits, as opposed to 18% levied on cinema services.

The tax treatment on SUVs, which attract a higher GST compensation cess on top of the 28% GST levy, was also clarified taking into account concerns expressed by Tamil Nadu and Punjab that the higher cess levy must not affect sedans.

“Till now, for a vehicle to be categorised as SUV with higher compensation cess — four conditions had to be met. They had to be generally considered an SUV, were longer than four metres, with an engine of 1500 cc or more, and a ground clearance of 170 mm,” said the Revenue Secretary.

The Council has decided to scrap the condition that the vehicle should be popularly seen as an SUV, and clarified that the ground clearance of 170 mm should be of an unladen vehicle.

“On services, we have offered exemption on GST for satellite launch services provided by private organisations,” Ms. Sitharaman said.