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With the GST Council expected to meet soon, there has been a lot of conversation around GST restructuring, rate rationalisations, for and against views around minimum thresholds and more. Online skill gaming sector, one of the recognised sunrise sectors which has of late seen a lot of positive feedback from the Centre, has also been waiting to hear on GST for many distinct reasons.

The online skill gaming industry has been on an upward trajectory for the last 4-5 years and the pandemic put this industry growing at the rate of 38 per cent CAGR into the spotlight.

As per a recent BCG report, this sunrise sector in India has gained significant momentum with excellent Internet service providers, penetration of the use of mobiles across social and demographic barriers and India's enthusiasm to adopt and adapt to the online gaming platforms.

India's share is currently at 1-2 per cent of the global gaming market with a market size of $1.8 billion of which Real-Money gaming has the largest constituent of revenue pool driven by higher user paying propensity (around 20 per cent of total market size). The total number of users of gaming services are close to 433 million and is expected to touch 650 million by 2025. However, apart from fine-tuning the regulatory mechanism, there's an urgent need to look at the GST levied on the sector.

Last year on May 24 a Group of Ministers (GoM) formed by the GST council to examine the taxation regime applicable to online gaming was seen as a progressive move, the industry hopes to see a stable and clear taxation regime. However, the committee was dissolved and a new one was formed earlier in February 2022.

Currently, services provided by online skill gaming platforms are classified under service accounting code 998439 of the GST services classification and through this attracts a rate of 18 per cent on the Gross Gaming Revenue (GGR) for the service provider whereas, the games of chance (including gambling, casinos and more) are subjected to 28 per cent GST.

The industry operators believe that the legislative view as proven by the jurisprudence in the country multiple times, clearly differentiates games of skill from games of chance and so the taxation levied should continue to take into account this differentiation. Furthermore, international practices related to taxes on gaming have proven that tax-rate shouldn't exceed 20 per cent. Some of the developed economies like the UK, the US (Pennsylvania), Singapore have tax rate of GGR 15 per cent, 14 per cent and 7 per cent respectively. A report by Copenhagen Economics (one of the leading economics firms in Europe) also concludes that a tax rate in the range of 15 per cent to 20 per cent of GGR produces the most favourable outcomes for both operators and tax revenue.

Malay Kumar Shukla, Chief Legal and Compliance Officer, Games24x7 says, "The international experience relating to taxation of gaming in the context of the platform-fee/GGR based gaming models has clearly shown the downside of excessive taxation. The GGR-based gaming platforms can only absorb an optimal range of taxation which is in the range of 15 per cent to 20 per cent of GGR. Higher tax incidence of tax is bound to alter player and compliance behaviour and will neither work in the benefit of the gaming industry nor the government. Therefore, the interpretation taken by the 'games of skill' industry in India to be taxed on Gross Gaming Revenue is supported by the legal provisions of GST law and is also in line with most international practices relating to taxation of gaming platforms."

At a time when the country has seen positive tax policies for some of the other identified sunrise sectors like biotechnology, chemical and renewable energy; it is only legitimate for this fastest growing tech industry within the M&E sector, to demand for a GST regime that can protect and promote the segment.