Exclusive: GoM online gaming convenor recommends escrow account for prize money

Currently, online gaming attracts 18 percent of gross gaming revenue.

The Goods and Services Tax (GST) Council in its meeting on July 11 will discuss the report of the Group of Ministers (GoM) on online gaming, in which no consensus has been arrived at, though its convenor recommends 28 percent rate calculated on GGR with a mechanism of escrow account to pool prize money for easier tax administration, a person familiar with the development said.

“The GoM has recommended that since no consensus could be reached on whether the activities of online gaming, horse racing and casinos should be taxed at 28 percent on the full face value of bets placed or on the gross gaming revenue (GGR), the GST Council may decide,” the person told Moneycontrol.

For online gaming, there was a broad agreement in the GoM that it should be taxed at 28 percent, while Goa has suggested 18 percent rate.

GGR is the platform fee collected by companies before shelling out the money to the winners.

The convenor of the GoM and Meghalaya chief minister Conrad Sangma in the report opines that the levy of GST may be only on the GGR in case of casinos, horse racing and online gaming with a special mechanism to carve out an escrow account wherein the prize money for the payouts to the winners, segregated from the platform fee, is pooled for the purpose of easy tax administration.

Moneycontrol has reviewed a copy of the GoM report.

The GoM could also not arrive at a consensus on if the activities at race courses and online gaming amount to betting and gambling.

“The perception that emerges from wide interactions is that both horse racing and online gaming are games of skill and not games of chance. There appears to be a difference made between the nature of the games on which GST is sought to be levied, i.e., games of chance and games of skill,” the report says.

Currently, online gaming attracts 18 percent GST on GGR. Horse racing and casinos currently attract 28 percent GST.

While Gujarat and Goa said that the contribution towards prize pool in online gaming may be treated as supply and not liable to GST, West Bengal and Uttar Pradesh in the report have recommended that online gaming be taxed as supply of actionable claims in the form of betting and gambling irrespective of whether it is a game of chance or skill. Uttar Pradesh and West Bengal are of the view that the GST should be on the full value of bets placed in online games.

Tamil Nadu said that horse racing and online gaming are games of skill and not actionable claims of betting and gambling, and hence should face 28 percent GST on the GGR. Maharashtra on the other hand has said the GST should be on the full face value but with a suitable reduction so that it doesn't go too high as a net amount.