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Skillfully gaming the system, industry ends up inflicting a self goal

THERE HAS BEEN a huge uproar about the hike in the GST rate to 28% on full value of the amount on online gaming, horse racing, casinos and other such ventures. The reaction has mostly been that this will sound the death knell for these businesses, especially for the online gaming platforms which provide real money fantasy gaming and card games such as rummy and poker These games have been termed "skilled games" as opposed to betting or gambling.

The Union Finance Minister Nirmala Sitharaman, while announcing the new rate had said the issue has now been reviewed twice by the Group of Ministers, which was formed in October 2020. On whether this hike would kill the online gaming industry, Sitharaman said: “There was a detailed discussion on this. Our agenda is not to kill an industry. All sorts of businesses have to be kept alive. Casinos in Goa and Sikkim yield a lot of revenue for the two small states…It is not so much our position, every state felt it.”

The decision, she said, was made after extensive deliberations. “When discussions on this happened, a state — I don’t want to name anyone — asked if tax on casinos, which are important for tourism revenues in some states, should be lower than the tax on food items. A discussion also took place on the moral question. No one wants to kill an industry, but they can’t be encouraged to such an extent over essential goods and services.”

She added that the tax on online gaming companies would be imposed without differentiating between skill-based and chance-based games.

Supporting this non-differentiation, Yatish Rajawat, Founder, Centre for Innovation in Public Policy says that, "It's good to see that GST council has not made any artificial differentiation between casinos and online gaming and taxed it at the highest level. I have been advocating for a tax on online gaming for a long time now and I am glad to see that at least the tax body has taken a mature view and not got swayed by false differentiation of games of chance and skills."

In a LinkedIn post, he maintains that "lobbying by these online gaming organisation has introduced the artificial difference in the gaming definition. This is not an industry that has to be encouraged in any way, this is an industry that has to be controlled through regulation. I have argued previously that this is an addictive product and no different from cocaine and hence needs to be controlled."

Reacting to the decision, Joy Bhattacharjya, director-general, Federation of Indian Fantasy Sports (FIFS) had said: “We are disappointed that the GST Council and authorities have chosen to apply 28 percent GST on the total entry amount, including prize money. As pointed out by FIFS and many of its members on numerous occasions, a change in valuation to tax on the total consideration will cause irreversible damage to the industry, loss of revenue to the exchequer, and loss of employment for lakhs of skilled engineers.”

The interesting fact is that the FIFS and the All India Gaming Federation (AIGF) are self-regulatory organizations (SRO) created by the companies within the gaming industry. They have different types of members who are supposed to adhere to rules created by themselves for better fucntioning of the industry and its stakeholders.

In his, post, Rajawat opines that this is not the right way. "I am also against the SRO route for the industry; an SRO can only be formed after a regulator is formed, not before."

The proliferation of chance-led fantasy contests, bordering on betting, has been on the rise on the fantasy gaming platforms. These contests form the bulk of revenue that is collected by these companies. Pure fantasy players have been complaining about how these contests need no skill and it has become purely a matter of chance. The social media handles of the fantasy brands have enough conversations from fans of fantasy gaming pointing to this fact. They have also expressed the fear that with there being no regulation and no authority monitoring the games, whether it is fantasy or card games, if the online games are rigged. It is unlikely that these factors would have gone undetected by the government while making this decision; the industry opening itself up for a body blow, despite the presence of SROs.

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