An Indian Supreme Court decision over gaming taxation will hold significant implications for an industry grappling with regulatory uncertainties and divergent tax rulings across the country, legal analysts consider.
In a recent legal analysis, Shankey Agrawal and Lopamudra Mahapatra from BMR Legal considered that India’s online gaming industry finds itself at a “crossroads” as it awaits a crucial verdict from the Supreme Court regarding the legality of a 28 percent tax imposed on gaming companies since the inception of GST.
“The unprecedented attention the online gaming sector has garnered from policymakers, owing to its exponential revenue growth post-pandemic. However, amidst this boom, the industry faces daunting tax demands, ranging up to billions of dollars, presenting a formidable challenge to its viability,” the lawyers pointed out in a joint article published in the India Business Law Journal.
Traditionally, India has discouraged gambling and betting, leaving the regulation of these activities to individual states. The distinction between skill-based and chance-based games has long been established, with skill-based games exempt from state levies.
For Agrawal and Mahapatra, the classification of online rummy as a game of skill, protected under constitutional provisions, underscores the industry’s complex legal landscape.
Despite legal precedents favoring skill-based games, the GST Department has raised tax demands on gaming companies, equating online gaming with gambling.
In a surprising move, the 50th GST Council meeting categorized online gaming on par with gambling and betting activities, subjecting it to a hefty 28 percent tax levy. This decision, seen as a substantive change to tax law, has stirred concerns within the industry about its financial sustainability,’ the lawyers described.
A Karnataka High Court’s ruling in favor of taxpayers was ‘temporary relief’, pending a final verdict from the Supreme Court.
‘As the Supreme Court prepares to commence its final hearing, industry stakeholders remain hopeful for a favorable outcome that addresses the nuances of online gaming taxation. The industry’s future hinges on the court’s decision, with high expectations for a resolution that ensures its growth and viability in the years to come,’ they added.
