Published: August 8, 2023

India: 28% GST on online gaming may not impact taxation on e-sports, video games

Rules in the works for demarcation between the two forms of online gaming

The recently proposed 28 per cent goods and services tax (GST) on online games involving real money will not impact the taxation on e-sports, such as FIFA and League of Legends, or leading titles on PlayStation, Xbox, and Nintendo platforms.  

The higher tax rate will be solely levied on pay-to-win games, such as fantasy sports, rummy, and poker, which have the scope of monetary gains.  

“E-sports and video games, intended purely for entertainment and not involving betting, gambling or any money transactions, will continue to be taxed as they have been,” according to a government official.  

Currently, e-sports and games meant for entertainment attract 18 per cent GST. Prominent players like Microsoft and Activision Blizzard offer such games without any betting component.  

Rules in the works for games involving monetary gains will distinguish such games or sports and those intended solely for entertainment. “The detailed framework will specify terms like ‘online money gaming’ and what all will fall under this category," a senior official familiar with the matter said.  

The GST Council in its last meeting decided to levy a 28 per cent tax on the total bet placed at entry level for each gaming session from October 1.  

Sources said that some top players of the video gaming industry had approached the finance ministry and sought clear demarcation to dispel misconceptions arising from the terminology.  

In their representations to the government, some of these entities raised concerns about the unrelated association between e-sports and gambling, betting, and similar activities. It is estimated that there are approximately three-four billion gamers globally for video games and e-sports.  

E-sports has been recognised by the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules and the same should be clarified for taxation purposes, said a person privy to the discussion. The GST Council in its last meeting agreed upon inserting the definition of online gaming: “An offering of a game on the internet or an electronic network and includes online money gaming.”   

 “Online money gaming” is likely to mean “games where players pay or deposit money or money’s worth, including virtual digital assets, in the expectation of winning money”.  

“The differentiation between online money games and online games in the GST law will allow the industry, where there are no money winnings involved, to pay tax at 18 per cent, like any other online portal,” said Bipin Sapra, partner at EY India.  

In addition to this, a new provision is also expected to be included for online money gaming offered by a person located outside the taxable territory. The person will be included under the ambit of Integrated GST.  

The framework could also include a “specified actionable claim” to encompass betting, casinos, gambling, horse racing, lottery, and online money gaming.  

An amendment in this regard to the Central GST Act is expected in the ongoing monsoon session of Parliament. The proposed draft Bill seeking the amendment is yet to be listed, despite a few days left in the session. The Centre can promulgate an Ordinance and also move a supplementary business list in the case of special legislation.  

After the Council meeting, Union Finance Minister Nirmala Sitharaman indicated that the provision to enforce higher taxation on online gaming would likely be considered in the ongoing parliamentary session. She also urged states to amend their laws as soon as possible for timely implementation. It’s different

E-sports/ video games: Electronic games purely for entertainment purposes They attract 18% GST on downloads, reactivation  Major players include Sony, Microsoft, Activision Blizzard  Online money games: Players deposit money in expectation of winning a larger amount The proposed 28% GST brings them on a par with betting & gambling firms Major players include Dream11, WinZO Games, Nazara Technology

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