The state finance ministers' panel is likely to recommend a GST levy of 28 per cent on online gaming, irrespective of whether it is a game of skill or chance, and may leave the final decision on the vexed issue of valuation to the GST Council, sources said.
The Group of Ministers, chaired by Meghalaya Chief Minister Conrad Sangma, had a virtual meeting on Tuesday to finalise their long pending report on taxation of online gaming, casinos and horse racing.
According to the sources, a majority of the state ministers in the GoM were of the view that the Goods and Services Tax (GST) on online gaming should be raised to 28 per cent. However, in absence of consensus on whether the tax should be levied on only the fees charged by the portal or the entire consideration, including the bet amount, received from participants, the GoM has decided to refer all suggestions to the GST Council for a final decision.
Currently, online gaming attracts 18 per cent GST. The tax is levied on gross gaming revenue, which is the fees charged by online gaming portals.
The sources said that there would not be any further deliberations at the GoM level, and the report would now be submitted to the GST Council for consideration. GST Council, chaired by Union Finance Minister and comprising her state counterparts, is the apex decision-making body for GST-related matters.
The GoM in its earlier report submitted to the Council in June had suggested a 28 per cent GST on the full value of the consideration, including the contest entry fee, paid by the player, without making a distinction such as games of skill or chance. However, the Council had asked the GoM to reconsider its report.
Following that the GoM took the views of the Attorney General and also met stakeholders from the online gaming industry.
Although the GoM deliberated on separate definitions for 'games of skill' and 'games of chance', it finally decided to tax both as demerit goods attracting a 28 per cent GST.
The message has to be clear that online gaming is a demerit good. However, some relaxation in valuation methods could be provided, the sources told PTI.
The GoM report in June suggested that the GST should be levied on the entire amount received as consideration from the participant.
The sector experts had said that charging a 28 per cent GST on the entire amount, which a player deposits for a game for both categories of online game, would reduce the prize money left for distribution and drive away players from legitimate tax deducting portals. This may also encourage online gamers towards unlawful portals that do not deduct tax.
Online gaming witnessed a spurt during the time of the Covid lockdown, with the number of users in India rising substantially. 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 2021.
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