Uttar Pradesh joins West Bengal to Push for Uniform 28 Percent GST on Online Gaming
UP Alignment with Lottery Lobby Surprises Experts
Uttar Pradesh not only doesn’t have its own state government-run lottery business, but is notorious for its very firm stance against any forms of offline or online lottery and gambling. Nevertheless, the state has recently aligned its position regarding GST policy on gaming with the national lottery lobby and West Bengal, a state with a thriving lottery business, in a move that has surprised experts.
On its 47th meeting held on June 28-29 in Chandigarh, the GST council did not make a decision on GST rate and valuation base policy for online gaming, casinos, race courses and lottery, and asked the Group of Ministers (GoM) that had been tasked to examine the matter to reconsider its recommendations based on further input by states.
The eight-member GoM led by Meghalaya Chief Minister Conrad K. Sangma had delivered its report earlier in May, suggesting a uniform GST levy at the highest slab rate of 28 percent over the full transaction or ticket value for all gaming varieties. The GoM recommendations contained no distinctions between the different modes of gaming, nor between skill-based and chance-based games.
Reportedly, after continued deliberations, a vast majority of the GoM members are now recognising online gaming, casinos and horse races as three distinct sectors that should receive different tax treatments.
As early as December 2021, the All India Federation of Lottery Trade and Allied Industries (AIFLTAI), India’s umbrella body for lottery distributors, stockists and agents, sent a letter to the GoM urging for a uniform GST rates and valuation rules for lottery and online games.
The position of the West Bengal government to support a blanket 28 percent GST over online gaming, casinos, and horse racing equalizing skill and chance games is fully in line with the AIFLTAI stance. This is hardly a surprise considering that the state relies on the revenues from its quite successful lottery draws which date back to 1968 and have been subjected to the same GST rules charging 28 percent over the full ticket value for some years.
Uttar Pradesh joining the lottery lobby that demands the same tax treatment for all other gaming genres, however, raises the observers’ eyebrows. The state not only adopted the Uttar Pradesh Unauthorised Lottery (Prevention) Act in 1995, but its Chief Minister Yogi Adityanath declared at the UP Legislative Assembly in 2020 that allowing casinos would bring degradation of moral values and cause a law and order crisis.
How Productive Can a Tax Be When It Is Covering an Unregulated Sector?
If the Union Government had been acting with the same efficiency towards regulating the gaming sector as it has been working towards setting up higher taxes for it, any time now Indians would be having a safe gaming environment, homegrown businesses would be thriving in a predictable and straightforward legal landscape, and the government itself would be collecting more tax revenues.
Rather than that, unfortunately, the government is putting the horse before the cart by focusing its efforts to get as much tax as possible from an unregulated sector. This approach is so productive, that there is even a risk to send the Indian online gaming sector on a downward spiral, as industry experts warn that this will be the result of equalizing the tax treatment of online games and lottery.
Prime Minister Narendra Modi has on several occasions recognised the potential of the homegrown gaming industry to bring growth and become a considerable power on the global market. A report by the Boston Consulting Group (BCG) and Sequoia India has evaluated that industry at $1.5 billion and projected its potential to reach a market size of $5 billion by 2025.
For comparison, a KPMG report from 2019 estimated the total size of gambling and betting in India at $130 billion growing at a rate of roughly 7 percent per year. Any single ODI played by Team India attracts $200 million in bets, the global financial advisory claims.
The government, instead of shying away and being afraid even to touch the subject of regulation over online gaming, gambling and betting based on moralistic assumptions, should better open its eyes to the existing reality and take care to differentiate skill- and chance-based gaming genres and regulate and tax them accordingly.
