At its next meeting, the Good and Services Tax Council is expected to set out the details of the proposed tax on online gaming, as well as define what constitutes an online gaming activity.

“What exactly would constitute online gaming for the purpose of tax is likely to be clarified by the Council. All games, whether those of skill or of chance, will be included in the definition of online money gaming, for the purpose of levying GST,” said a source familiar with the development.

The Council is scheduled to hold a video conference on August 2 to discuss the legal amendment and rules for the collection of the tax. The meeting will be held under the chairmanship of Union finance minister Nirmala Sitharaman. The Council had in its previous session on July 11 agreed to impose a 28% GST on the total value and other taxable claims.

To do this, section 3 needs to be amended in the GST Act to make online gaming and various other taxable claims and the government is keen to table the proposed amendments in the Monsoon session of the Parliament which is currently on till August 11.

The Council is also expected to elaborate on how and based on which the tax will be collected. This has been a major issue for the online gaming sector. Online gamers are worried about recurring taxation if the GST is collected at every step of the process and have requested the government to provide clarity on this. According to sources, this aspect has been taken on board and is likely to be discussed in the Council.

According to L. Badri Narayanan, Executive Partner at Lakshmikumaran & Sridharan Attorneys when a player deposits a gaming platform, he or she is essentially purchasing the privilege of playing games on the platform. “This right is inherent in the amount deposited, and once taxed upfront, no further tax should be levied,” he said.

However, viewed from a different perspective, the proposed tax is intended to apply to transactions involving players which involve both wins and losses. “In transactions between players, there are wins and losses. The wins amount to provision of supplies where payment is received by the player and losses amount to receipt of supplies where payment is made by the player,” he pointed out If every transaction is taxed at the full amount, then all transactions are taxed as wins with no adjustment for losses or credit. Such a tax would result in a cascading effect.

The Council is expected to also talk about how to block foreign-based online gaming websites which do not adhere to the GST rules. In their investigation of online gaming companies on the charge of GST evasion, the tax authorities are already collaborating with the Ministry of Electronics and Information Technology to shut down the websites of such players.

Credit: Business Today