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India’s GST regime for online gaming: 28% tax imposed. Who does it concern and how it will work?

India’s GST regime for online gaming: 28% tax imposed. Who does it concern and how it will work?

Today's issue is about the regulations that were recently adopted in India relating to the taxation of online gaming profit.

There's been a lot of talks about this regulation, a lot of rumours and some unconfirmed facts and now that it has been already two weeks from its adoption we know some more. We also know that on August 2 there will be a final decision on the particular issues of application of this taxation. 

So let's make some points regarding these regulations. 

First of all I will say straight: online gambling is not allowed (is illegal) in India at all. This is the first point we must understand. There's been a problem with the complex division of authority and power in India between the federal government and also the states but the fact stays to be the fact: it is not legal to play, for example, online casino games in India, it is not legal to be involved in online casinos and it's not even legal to place bets on sports (make wagers).

There's been a crusade over the India's PM claim of a one trillion of the U.S dollars in the industry of startups, particularly high-tech start-ups. So, Indian governments made efforts to make this thrilling industry of startups grow and this is how there appeared a now worth of 2.5 billion industry of fantasy sports in India. 

So, my second claim is that this taxation regulation passed by a Council of Good and Services taxation (GST) concerns by 80 percent fantasy sports in India because this is exactly the 80 percent of the whole market that's been involved in fantasy Cricket fantasy football leagues and so on. 

That's why we are actually talking about this particular segment of online gaming, it is even called ‘online gaming’ because ‘online gambling’ as a term is ruled out of the question because it is known that it's illegal.

So what do we know about these fantasy leagues on Cricket Sports and football and so on?

We know that this discussion revolves around one particularly crucial point: there are games of chance and games of skills and all the industry participants were claiming that fantasy sports are a game of skills because arguably their parts of skills are larger than a part of chance.

I made a quick investigation and I can see that this is simply not true. So, all this talk about this booming industry or sector of fantasy sports worth €2.5 billion are just talks. This is simple gambling and I will show you how later on.

So the idea of this legislation is to put the 'sin industry' taxation (like in alcohol and cigarettes, etc) over this sector, which in fact is meant to say that we (the Indian government) understand that all this is gambling. So this legislation puts a sign of an equation between so-called online games for money and the gambling. So it's actually to bring these industries under a single regulative umbrella and put in a ‘sin industry taxation’ on it. 

It made a lot of noise here and there in India and people were saying that these were the efforts to kill this industry but in fact this is just an early sign or probably a first measure that’s  taken to it. Ultimately, everybody knows it's illegal and the government that's putting this sin industry taxation is making only a first step. After this taxation will go to others and some particularly notorious gambling activities will be simply banned.

The problem of India' government regime is that some states in the north we're ruling this is illegal and it's banned but some states especially their Supreme Courts has been ruling it's not illegal and so there's some ambiguity in application of law.  But there's no ambiguity on the high level, i.e. on the level of policy, it's clear. 

So what about this tax or what are the points of application of this tax?

So we know that it is 28% taxation - as I call it a 'sin industry' tax - but on what? So the question here is what is the base of taxation? Likewise, the industry participants have been claiming it's not clear what kind of taxation: is it all about the deposit amount or is it bets (turnover)?

I made some investigation I can see that after the clarification that are expected to be coming up on the 2nd of August most probably it will be made clear that a taxation is on the whole amount of deposits because as I was saying the industry is about fantasy sports and this is a justification that's it's a gambling activity.

A fantasy sports works like this: people would buy an entry ticket by making an entry payment or a participation fee, which means this is a game for money or a 'pay to enter' a game.  And then using this participation fee they can create a team of their own and using some app interface populate this team with players and so on.

So there are obviously some levels of subscription and some additional money that will be requested for additional features in these applications, most of which are mobile apps. 

So once this for money activity has been made, the players (users) can participate in online tournaments with their so-called teams and so on and these tournaments will bring them real money prizes.  Most of the time participation in these tournaments is also for a fee. 

So we understand from this: there's a pay to enter game where there might be required additional money or tickets paid for money, which is at stake obviously, because for this money you will have a chance of winning some monetary prize on an event that you have no control over, which means gambling itself. 

And the said event is an outcome of a particular sports event. For example, if you make a team of players that would score in their respective teams in real life you get some points and it is by these points that you get some money in return. 

So you obviously have no control over their performance, nothing in your particular power, so this is a gambling and it's worthless to debate over it. From this I deduce that obviously this taxation will be put on this entry ticket (deposit) money, etc and it's  a fair taxation because it is at par with the taxation of alcohol and cigarettes, which are mostly the same concepts in the eyes of the government.
The idea of this taxation is to discourage people from gambling (likewise with other sin industry products) because the government has been seeing a particularly detrimental effects of this quickly accessible games (whatever you call them) in terms of developing
habits especially with young people or children because underage participants are not really forbidden to play.

So weighing the benefits of this gambling industry, which reportedly makes up to 50'000 work places and drawbacks of this industry, which can literally kill people or devastate whole families and the morality (because this is mostly Islamic or Hinduism country) brings us to the thought that this are two different and incommensurable things if you out them this way.

So it's my take on the idea of gambling taxation regime newly imposed in India. We will wait for a couple of days until August for clarification from the government and meet you again. If you want to ask a question in person you can find my email on this site. 

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