The 28% Curse For Online Gaming Players

The sunrise sector has often found itself caught in the crossfire of regressive legislative action, with certain states citing safety and legality concerns to either put companies on a tight leash or ban them completely. Will the Central government's recent rules for online gaming bring transparency or crush it under excessive GST demand?

- Vinita Bhatia

In April this year, the Ministry of Electronics and Information Technology (MeitY) notified the latest rules for online gaming, putting in place a regulatory framework for an industry that has often complained of unfair treatment due to a lack of clarity over what can be interpreted as legal. Coming amid increasing instances of edgy state governments rushing to either ban online gaming or penalise companies, this clarity can also be the much-needed shot in the arm for the industry and coax hitherto wary investors to shed some of their inhibitions.

Last month, the Karnataka High Court quashed a show cause notice issued to online gaming company Gameskraft Technologies by the Directorate General of GST Intelligence (DGGI) after the tax body found users placing bets on the company's gaming platforms like Rummy Culture, Rummy Platform and Rummy Partner. The DGGI estimated the total value of bets on these "games of chance" between 2017 and 2022 at Rs 77,000 crore, and levied a 28% tax on the company. The penalty charges ballooned to a whopping Rs 21,000 crore. The startup contested this levy, claiming that it went against the legally accepted distinction between "games of skill" and "games of chance". Games of chance attract 18% GST.

Diving into Definitions

In the past, the country's courts held that a game of skill could be differentiated from a game of chance based on the predominance of skill or chance in the activity involved.