In many online games like fantasy sports and other skill-based betting games, the prize pool is made up of the entrance fees that are paid by users when they enter the tournament or event. Currently, GST of 18% is spent on that commission, whereas the proposed rules want to treat the prize pool as an actionable claim and levy GST on that as well. It was stated that, for the time being, GST is only applied to actionable claims in the cases of lottery, betting, and gambling, where the outcome is solely determined by chance. Even the Supreme Court held that lotteries, betting, and gambling are actionable claims and fall under the definition of ‘goods’ under Section 2(52) of the Central GST Act, 2017.
The GST council deferred its decisions on this matter to September, when it will decide whether to change the current tax rate from 18% to 28%. This comes as a blow to the gaming industry as the issue of increased taxation affects their already low margins. The gaming firms usually work with a 4% – 7% commission rate. Therefore, when the platform doesn’t retain pool money, a higher tax burden on the sector leaves little room for growth and profitability. If implemented, it could also make the gaming industry charge a higher rate to enter the tournaments, discouraging many emerging athletes from playing on secure and regulated platforms. Informal players who do not pay tax may likely enter the field to fill the market gap.