Indiatech.org, an industry body representing tech start-ups has recommended to the GoM (panel of State ministers) constituted by the GST council that GST should only be applied on the platform fee charged by online skill-based games and not on the total prize pool money.

In real-money games, players have to pay an entry fee to join a gaming tournament and the total amount collected in this process is called the prize pool money. This pooled amount is later distributed among the players as prize money and the company earns a percentage (4-20 per cent) on this amount as platform fee.

Different companies have different models of holding the prize pool money. In some cases, the amount is received and held by a third party on behalf of the players and then this third party distributes the amount to winners as per the rules of the game. In other cases, the third party involved is actually a financial service provider like a bank or digital wallet which facilitates the transactions and charges a commission for it. “It is pertinent to note that the technology platform owner has no right, title or interest over the prize pool amount,” Indiatech said.

This distinction is critical because in the cases of lottery, betting, gambling and horse racing, “100 per cent of the face value of the bet or amount paid into the totalisator” is considered for GST.

Suitable clarification should be issued that Rule 31A is not intended to cover games of skill and therefore is not applicable to any form of online gaming where there is a preponderance of skill over chance (thereby covering online fantasy sports as well as online skill based casual games and sports),” the industry body added.

Also read: GST: SC rules on refund in case of inverted duty structure

Further, the industry body noted that in cases where the gaming companies’ revenue model includes a subscription fee, in-game revenues etc, GST should be applicable on only the among received by the platform. They have also recommended that skill predominant games should be taxed at 18 per cent on the platform fee, as higher tax rates can impact the industry’s growth.

In August, the All India Gaming Federation(AIGF) and consulting firm EY also published their recommendations on the GST rate for online gaming in a report titled ‘Online Gaming in India - The GST Conundrum’.

Similar to Indiatech, this joint report had also suggested that GST on the online gaming sector shouldbe 18 per cent. The report had also sought clarity that only platform fee will be considered for levying GST on online gaming platforms. “While most industry players have a platform fee, in the range of 4 per cent to 20 per cent, any attempt to levy GST on the entire stake value will lead to unviability of the business model and would force closure of businesses,” the joint report noted. “

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