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  • Shubham Singh

Direct Stress on Indirect Taxes of the Online Gaming Industry

[Shubham is a student at National Law University Odisha.]

Online gaming has become a popular pastime in India, with millions of people playing games for fun and for money. The judiciary and the legislative had taken different approaches to regulating online gaming in the past creating a tussle between themselves. For example, The Madras bill categorized rummy and poker as gambling, despite legal precedents establishing them as games of skill. The Government of Karnataka’s previous ban on online gaming was overturned by the High Court due to infringement on free speech and expression rights.

Taxation in the online gaming industry, specifically, the goods and services tax (GST), differentiates skill-based (18% tax) from chance-based games (28% tax). However, this differentiation was done away with by the 50th meeting of the GST Council, where it was recommended by the council that casino, horse racing and online gaming should be uniformly taxed at a rate of 28%, not making a distinction between a 'game of skill' and a 'game of chance'.

In the present article, the author analyzes the conundrum between a ‘game of chance’ and a ‘game of skill’ with respect to the decision of the Karnataka High Court discussed below and subsequently discuss the decision of the GST Council which makes the aforementioned decision and issue infructuous.

Solving a Conundrum While Creating a New One

In the case of Gameskraft Technologies Private Limited v. Directorate General of Goods and Services Tax Intelligence, it was seen that the legislature disregarded the judiciary’s interpretation of the law, imposing the full-face value of GST on games despite prior rulings categorizing them as skill-based. In an ideal situation, the legislature is expected to place reliance on the definition of a ‘game of skill’ and a ‘game of chance’ using a predominant test that was established by the judiciary. However, there was a discrepancy in the interpretation of the definitions of ‘game of skill’ and ‘game of chance’ and the predominant factor test by the legislature and the GST departments. Essentially, due to the absence of a specific list of games that fall under the categories of 'skill' and 'chance' and a clear definition within the GST legislation, the GST body as a whole relied on judicial interpretations but retained the freedom and discretion to interpret such definitions based on their understanding of those definitions. This lack of uniformity in the interpretation of taxes on the online gaming industry arose as a result.

The recent recommendation by the GST Council solves this conundrum of uniformity in the legislation, although affecting the online gaming industry and disregarding the interpretation by the judiciary in the process.

Critical Analysis

Pursuant to the GST Council Recommendations, the government wants to levy the 28% tax not just on the commissions, but on the entire pot of money. This will have a heavy impact on the online gaming industry. The recommendations made did not address the distinction between games of skill and games of chance in the context of online gaming. The absence of a clear distinction between games of skill and games of chance in the context of online gaming creates ambiguity around these recommendations. The rationale behind this differentiation is that skill-based games are considered more akin to services requiring specific expertise and effort from the player, while chance-based games rely predominantly on luck or random outcomes. It was done to ensure a fair and equitable taxation framework for the online gaming industry.

While arguments to sustain these recommendations can be that online games are often perceived to involve more chance due to the use of random number generators to determine outcomes, leading to comparisons with gambling rather than purely skill-based games. The Indian Judiciary has in the past observed that the principles applied to offline games should extend to online platforms, ensuring consistency as if a game has predominantly skill-based offline, it will have the same application online. Take the example of horse racing, it involves the breeding, training, and racing of horses. It is the skillful application of training and racing strategies that determine a horse's overall success and is the dominant factor in determining the outcome of the game and it was treated as a skill-based game.

Irrespective of the consideration given to the skill and chance-based factors, the imposition of taxes on the full value of bets placed in online gaming is unduly stringent and poses a significant detriment to the Indian market for the online gaming industry. This approach is viewed as excessively harsh and has the potential to undermine the growth and sustainability of the industry severely. Online gaming companies had anticipated being taxed based on gross gaming revenue (GGR), aligning with industry expectations and international practices which are followed by countries such as the UK, Australia, Italy, Sweden, Singapore, Malaysia, etc., which would have provided a more balanced and conducive taxation framework. The GGR is essentially the total amount of money a gambling business brings in through bets deducting the amount that is paid for the win. GGR is a fair tax base and it captures the entire amount of revenue that an operator generates from gaming, regardless of whether the operator wins or loses. GGR is also a progressive tax base since it would mean that operators with higher GGR will pay more GST, which helps to ensure that the tax burden is shared fairly.

While the aim of achieving legislative uniformity is commendable, it is evident that there is a lack of harmonious treatment of this issue with both the judiciary and the online gaming industry. One potential solution could have been the inclusion of a precise delineation of games of skill, chance, and gambling within the GST legislation by the Central Government. Moreover, this solution necessitates the provision of a comprehensive list specifying which games fall under the categories of skill, chance, and gambling, while duly considering judicial interpretations. By adopting this approach, the GST department would be empowered to accurately classify games, thereby eliminating any ambiguity regarding their categorization as games of chance, skill, or gambling. This, in turn, would have offered a lucid framework to both the judiciary and the online gaming industry.


In conclusion, the recent recommendations by the GST Council to uniformly tax online gaming at 28%, regardless of whether it is a game of skill or chance, is a step in the right direction towards achieving legislative uniformity. However, it is important to ensure that this uniformity does not come at the expense of the online gaming industry. This situation sets an unfavorable precedent for the online gaming market and its future investments. The problem extends beyond the monetary aspects of the industry and affects its operational aspects as well, particularly the platforms that provide these services. It could lead to operators shifting their business to other countries with lower taxation rates.


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