E-gaming firms worry claims in GST may cripple sector

In many online games, including fantasy sports and skill-based betting games, users pay small amounts to enter a tournament or event. These amounts together form a prize pool for the event, from which the platform takes a commission.

At the moment, a GST of 18% is paid on that commission, whereas the proposed rules want to treat the prize pool as an actionable claim, and levy GST on that too.

According to the GST Act, an actionable claim is a claim to any debt, which is what the prize pool is being treated as in this case. However, platforms argue that the prize pool itself is not a debt for them.

“Actionable claims refer to liability to be paid depending upon who wins,” said Ketan Godkhindi, chief strategy officer at Witzeal Technologies, a Gurugram-based gaming company.

He added that this is not the money owed by platforms. The pool is just held in a trust through an escrow account, and it becomes an actionable claim because it becomes a claim to be paid off the moment the winning happens.

GST on actionable claims is “currently applied to lottery because lottery is part of the prize pool entirely,” said Godkhindi. In December 2020, the Supreme Court held that lottery, betting and gambling are actionable claims and fall under the definition of ‘goods’ under Section 2(52) of the Central GST Act, 2017.

“The fundamental difference here is between the game of skill and the game of chance,” Godkhindi noted. Most real money gaming platforms that allow players to compete in games like ludo, rummy, carrom, or fantasy cricket have maintained that the games test participants’ skills and cannot be equated with gambling.

In 2015, the apex court recognized online rummy as a game of skill. The judgement has since then played a key role in changing the perception about skill gaming and the subsequent growth it has seen. It has also featured in cases against these platforms in states such as Karnataka and Rajasthan.

A November 2021 report by market research firm RedSeer projected a threefold growth in India’s gaming industry by 2026, touching a total size of $7 billion.

While the GST Council had deferred its decision on the matter to September during its meeting held last month, it is expected to change the tax rate from the current 18% to 28%.

“Though the gaming industry has largely accepted the proposal of a 28% GST, the issue lies with the way the tax is implemented,” said Sameer Barde, chief executive of E-Gaming Federation, an industry body.

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