A decision by the Indian Supreme Court regarding gaming taxes is poised to have significant implications for an industry struggling with uncertain regulations and varying tax rulings across the nation, legal experts say. In a recent legal assessment, Shankey Agrawal and Lopamudra Mahapatra from BMR Legal observed that India’s internet gaming sector stands at a crucial juncture as it awaits a pivotal judgment from the Supreme Court on the legality of a 28 percent tax imposed on gaming firms since the introduction of GST.
“The unprecedented attention received by the online casinos sector from policymakers is due to its tremendous revenue growth post-pandemic. However, amidst this surge, the industry is confronted with substantial tax obligations, reaching billions of dollars, posing a significant challenge to its sustainability,” the attorneys noted in a collaborative article published in the India Business Law Journal.
Historically, 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 taxes.
For Agrawal and Mahapatra, the categorization of online rummy as a skill-based game, protected under constitutional provisions, highlights the intricate legal landscape of the industry.
Despite legal precedents favoring skill-based games, the GST Department has imposed tax demands on gaming firms, equating internet gaming with gambling.
In a surprising development, the 50th GST Council meeting placed internet gaming on par with gambling and betting activities, subjecting it to a substantial 28 percent tax rate. This decision, perceived as a significant change to tax legislation, has raised concerns within the industry regarding its financial viability,’ the attorneys remarked.
A Karnataka High Court ruling in favor of taxpayers provided ‘temporary relief,’ pending a final judgment from the Supreme Court.
‘As the Supreme Court prepares to begin its final hearing, industry stakeholders remain optimistic for a favorable outcome that addresses the intricacies of internet gaming taxation. The industry’s future depends on the court’s ruling, with high hopes for a resolution that ensures its growth and sustainability in the years ahead,’ they concluded.
