Arshad Shaikh studies the decision by the government to impose a 28% GST on the full face value of the bets in online gaming. As expected, the gaming industry is crying hoarse, accusing the government of sounding their death knell. However, many see it as a step in the right direction to rein in the worrying growth of the younger generation taking to online betting and games of chance. The government is trying to have the cake and eat it too by projecting itself as business-friendly as well as occupying the moral high ground. Unfortunately, it is failing in both. If the industry continues to flourish, unfazed by the GST-show-stoppers, the moral fibre of our nation will weaken and turn our youth into punters and gamblers.
In the 50th meeting of the GST Council, it was decided to levy a 28% tax on the full face value of the bets involving online gaming and other games of chance like horseracing and casinos. The stock of those companies tanked and there was a huge outcry over the government’s decision.
Presently, online games and betting companies are taxed in the following manner. A 28% GST implies that for every ₹100 that an online gaming/betting company earns, it will have to pay ₹28 in GST. The winnings from online games are taxed as “income from other sources” under Section 115BBJ of the Income Tax Act. This means that the winnings are taxed at a flat rate of 30%, without any deductions or exemptions.
Online gaming/betting companies are required to deduct Tax Deducted at Source (TDS) at the rate of 30% on any winnings that are paid to a player if the winnings exceed ₹10,000. This TDS is payable by the player to the government, and the online gaming company is simply acting as a collection agent.
The GST is a turnover tax, which means that it is levied on the total amount of revenue that an online gaming company earns. This includes the money that players deposit into their accounts, as well as the money that they win. The income tax on online gaming winnings is a flat rate tax, which means that everyone pays the same rate, regardless of their income.
The GST decision by the government is aimed at discouraging gambling and addiction among the youth; generating additional revenue for the government and bringing online gaming and betting under the tax net. It could not impose a blanket ban on the betting and gambling industry because the government wants to be seen as business-friendly and morally upright.
However, judging by the reaction of the affected industry and the mainstream media, it appears that the government has failed in its “heads I win, tails you lose” policy.
THE BACKLASH
As expected, the online gaming and betting industry did not take kindly to the heavy-handed GST imposition. Former co-founder of fintech company BharatPe and founder of fantasy cricket and gaming platform Crickpe, Ashneer Grover tweeted, “India is super fun! Super ironic! Uncles sipping on their drinks, smoke in hand, bragging about how they made their fortunes in land speculation – by putting their cash to good use, planning their next Casino trip to Macau and passing judgement on online gaming and how it’s spoiling the youth – would love to see the Government introduce 28% GST and 20% TCS on land purchases!
The India Online Gaming Federation (IOGF) also put out their views on Twitter, saying, “GST Council’s decision to levy 28% GST on online skill games is unconstitutional, irrational and egregious. It will kill the burgeoning esports industry in the country and wipe out jobs of thousands of people. IIGF strongly condemns the decision and calls on the government to reconsider it immediately.”
Malay Kumar Shukla, Secretary, E-Gaming Federation blasted the decision, saying, “RIP – Real money gaming industry in India. If the govt is thinking people will put in ₹100 to play on ₹72 pot entry (28% Gross GST); and if they win ₹54 (after platform fees) – they will pay 30% TDS on that – for which they will get free swimming pool in their living room come the first monsoon – not happening! It was good fun being part of the fantasy gaming industry – which stands murdered now. $10 bn down the drain in this monsoon. Time for startups Founders to enter politics and be represented – or this is going to be spate industry after industry.”
DEBATE AROUND GAMES OF SKILL VERSUS GAMES OF CHANCE
For the industry, games of skill are those that require a significant amount of knowledge, strategy, and skill to win. Examples include chess, poker, and fantasy sports. On the other hand, games of chance are those that are based on pure luck, such as roulette, blackjack, and slot machines.
The Government of India has traditionally classified games of skill as a constitutionally protected activity, while games of chance are subject to taxation. However, the recent decision by the GST Council to levy a 28% GST on online skill games has blurred the lines between the two categories.
The online gaming industry argues that the 28% GST is unfair and discriminatory, as it treats games of skill the same way as games of chance. They argue that games of skill are not addictive and do not pose a risk to public health. They also argue that the 28% GST will stifle innovation and growth in the online gaming industry.
Critics say calling fantasy sports as a “game of skill” is erroneous. They say that the outcome of a fantasy sports league is determined by too many factors beyond the control of the players. These factors include the performance of individual athletes, the decisions of coaches and managers, and even the weather. They argue that even the most skilled fantasy sports player cannot guarantee a winning season. This is because there is always an element of luck involved in the game.
For example, a player could draft a team of all-stars and still lose if those players are injured or have off-days. Critics also point out that the entry fees for fantasy sports leagues are too high. This makes the games more like gambling than a true test of skill. The government has defended the 28% GST, arguing that it is a level playing field for all gaming operators and will help to raise revenue for the government.
THE MORAL QUESTION
Research into the question of addiction to gambling reveals that gambling releases dopamine – a neurotransmitter that is associated with pleasure and reward. When we gamble and win, our brains release dopamine, which gives us a feeling of pleasure. This feeling of pleasure can be addictive, and can lead us to gamble more and more in order to experience it again.
Proponents of gambling believe it provides a temporary distraction from stress, anxiety, or depression. However, it makes these problems worse in the long run.
The Qur’ān prohibits games of chance, saying, “They ask thee concerning wine and gambling. Say: “In them is great sin, and some profit, for men; but the sin is greater than the profit.” (The Qur’ān, 2:219) The Qur’ān prohibits games of chance for a number of reasons. Games of chance are based on luck and chance, and do not require any skill or knowledge. This makes them a form of gambling, which is prohibited in Islam. It can lead to addiction and financial ruin.
Many people who gamble eventually lose more money than they can afford, leading to financial problems and even bankruptcy. It damages relationships, increases irritability, depression, and frustration; sometimes leading to violence and suicide.
Muslims are forbidden to participate in any form of gambling, including lotteries, card games, and betting on sports (both online and offline). The Government of India is taking a great gamble in promoting online games of chance albeit half-heartedly. By jeopardising the future of our younger generation, it is acting “penny-wise pound-foolish.”