Think Change Forum (TCF), an independent think tank committed to producing groundbreaking thoughts and tracking down solutions for exploring the post-pandemic world, delivered proposals based on a roundtable on ‘What is the right taxation approach for a sunrise sector like Online Skill-Based Gaming?’

The event had five eminent panelists: Mr. Rohan Shah, Senior Counsel Supreme Court; Mr. Trivikraman Thampy, Online Games Entrepreneur, Founder-CEO Games24x7; Mr. Swapan Sarkar, Chief Executive, Sarkar & Associates; Mr. Suraj Malik, Managing Partner, Legacy Growth Partners; and Dr. Ramakrishnan Thiruvananthapuram S, Public Policy Analyst.

The discussion zeroed in on the difficulties and improvements required in the tax system relevant to dawn technology organizations like online games.

An AVGC (Animation, Visual Effects, Gaming, and Comics) Promotion Task Force report, constituted by the government has proposed a national AVGC-Extended Reality Mission with a budget outlay to be created for integrated promotion and growth of the sector. In India, Online Skill-Based Gaming (OSG), is as of now a $2.5 billion industry with a CAGR of over 38% and is projected to develop to $20 billion by 2030 regarding income.

To completely understand the capability of this sector, the panel felt the requirement for a clear and steady approach to personal taxation, failing which the proposed budget outlay for AVGC sector promotion will be at risk and the government will lose thousands of crores in taxes. There is a need to redesign the old sections 194B and 115BB of the Income Tax Act, 1961, and guarantee that the taxes paid by players don’t go beyond their net profit. India needs to bring income from gaming activities at par with worldwide practices and permit expenses and losses from gaming activities to be offset against the income. A high 30% TDS on regulated platforms is making offshore untaxed platforms that don’t deduct these taxes, flourish causing the government to lose taxes and foreign exchange and putting players at higher risk.

Experts believe that taxation is certainly not a reasonable instrument for forcing disciplined behavior among players, which is better accomplished through technological interventions.

Rohan Shah, Senior Counsel Supreme Court, said during the discussion: “Gaming sector is a new age opportunity while the tax relevant provisions are from another era namely 1961, 1972, and 1986. So the industry of 2022 and tax provisions from the 1970s are very clearly not dovetailing with each other. From a direct tax perspective, you first identify what is taxable. There are three elements here. Firstly, Section 115BB says that anything that accrues from pay-to-earn or crosswords, etc will be taxed at a full tax rate which is 31.2%. Another issue is TDS under Section 194B, which is deducted upfront. And the third element is Section 58(4), which does not allow for any set-offs. There is no contemplation of any loss here since in the 1970s crosswords was not seen as an industry!

“If we are to have the ability to create a global gaming industry and create allied industries then we should also look at other countries on how they are tackling this issue. In the US, income from gaming is treated as normal income where you can claim your deductions. In the UK, winnings are not subjected to any income tax at all.”

Trivikraman Thampy, Online Games Entrepreneur, Founder-CEO Games24x7 said: “Discussions in the public domain have talked about tax evasion to the tune of tens of thousands of crores in the industry which is not the case and stems from a lack of understanding of the core business model of the industry. Unlike gains in contests like lotteries where one competes with thousands of others at a given point in time, gains in any single online skill game are not massive because it is only between a few players. So, even if a player wins 70 percent of the games, the player will have to go out of pocket to pay the taxes. If the laws written keeping in mind crosswords and lotteries were to be implemented in online gaming, the implications would be disastrous. The growth that we are talking about in the sector will come to a grinding halt. Unlike the stock market, gaming players can go to online global pay-to-earn platforms which are illegal and outside any tax net, and where they need not pay any tax as the geographic boundaries for digital transactions are very porous.

“Certifications for operators will help consumers to identify legal platforms and will keep illegal operators away, grow the domestic industry and enable tax revenue for the government. Whether it is regulation, consumer protection, indirect taxes, everything has to be thought through together and not in a piecemeal manner.”

Swapan Sarkar, Chief Executive, Sarkar & Associates, said: “We need a very simple easy to interpret tax regime for a sunrise industry like OSG. Income tax means that taxability has to be on the income and not beyond that. Section 115 talks about winning from lottery and crossword puzzles –which cannot be on the same page since one is a game of luck and the other is of skill. As far as deductions are concerned there are provisions in the income tax laws that can be emulated. Let’s look at rental income where a 30 percent ad hoc rebate is provided for repairs and maintenance of the property, this can be applied in the gaming sector also where you can have an ad hoc provision in the earnings. Any technology or internet-based activity will pose challenges and a high-powered committee consisting of technology, tax, and financial experts need to make a pragmatic and easy policy.”

During the discussion, Suraj Malik, Managing Partner, Legacy Growth Partners, said: “Tax laws need to be interpreted in a certain way, which currently seems to allow the operator to deduct tax only at the time of payment of the winning amount exceeding the threshold of ten thousand. Nonetheless, for a player the entire winning amount is taxable and it is complex to figure out the final tax liabilities due to ambiguity in the law. For example, Section 58 is the spoiler by which a player is not permitted to offset any expenditure or losses against winnings or adjust losses and winning across gaming platforms. Tax provisions for online skill-based gaming need some clarification so that the industry continues to grow with certainty on a reasonable tax policy and is distinguished from how we understand pay-to-earn.

“The law has to give certainty and for these changes can be made incrementally within the existing provisions which can come either as clarifications by CBDT or changes in the relevant sections.”

Ramakrishnan Thiruvananthapuram S – Public Policy Analyst, said: “I agree that the tax policy has to be consistent, non-ambiguous, and pragmatic so that it works on the ground if India has to turn into a global gaming hub. Gaming is an innovative and creative field and even the Supreme Court has confirmed that online gaming is a matter of skill. To nurture it in the right manner and prevent global pay-to-earn platforms from usurping our legitimate domestic platforms as well as eating into the tax revenues of the government there is a need for rationalization of the taxation policy. Offsetting should be very much permitted as is happening in the stock market. Reasonable restrictions are fine and limits can be set for players depending on their profile but a ban is not the solution because there is a definite demand for such games of skill.”

Credit: Business Standard