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May Write to Finance Standing Committee to Discuss GST Gaming Hike, Write Report: MP Amar Patnaik

Patnaik added that while the GST Council has GoMs, there is no scheme for public consultations on proposed laws

Biju Janata Dal MP Amar Patnaik may soon nudge the Standing Committee on Finance to discuss the government’s recent decision to hike the GST rate for ‘online games’ involving wagering to 28%. 

“I will probably propose to the Chairman of the Standing Committee on Finance, Jayant Sinha, that we should have a detailed discussion on this and make a report for the Parliament, which will obviously go to the government as well,” Patnaik said during a Twitter Spaces discussion on the spiked tax slab on Sunday. “Since this [hike] is going to go to the Parliament because of the definitional change that is required [in the GST law], maybe all the MPs voting on this particular issue would have a better background and better understanding of the system [then]. So, this is what I’m going to write right away, probably tomorrow, or day after.”

The GST Council’s hike taxes online games of skill played for stakes (often held to be non-gambling games) at par with gambling games. Gaming companies have argued that the move will destroy user returns and the industry’s economics overnight, petitioning various government authorities to reconsider the move. 

For example, despite earlier praising the hike, Minister of State for IT Rajeev Chandrasekhar, who also steered this year’s online gaming regulations, hinted yesterday that he may request the Council to reconsider:

“The GST Council’s findings are not the government of India’s. It is represented by all state governments, and is a truly federal council. State governments have come together [under it] and created a GST framework. The hike is a consequence of three years of their work. We have to recognise that the process for creating a regulatory framework for online gaming only began in January 2023. We are only in the early stages of creating a predictable, permissible, and sustainable online gaming framework. We will do that. We will go back to the GST Council and maybe request their consideration on the facts of the new regulatory framework. But, I hear the noise, I hear people saying this is unconstitutional. I’m sorry to say, but they’re totally wrong.” 

The Monsoon Parliament session is slated to start this Thursday, which could affect these plans, Patnaik added in the Spaces chat.

“Taxation issues get introduced very fast,” Patnaik clarified. “So, the amendment might get introduced in the monsoon session itself, and we may not have had the time to discuss it in the Committee, because during Parliament sessions, Standing Committees generally don’t meet. But, I would really request Jayant and others because we have been discussing this informally quite a bit.”

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11 talking points from Patnaik’s Twitter discussion

1. This hike isn’t a knee-jerk decision, but it also lacked consultations: “We shouldn’t blame the GST Council alone because this was not a knee-jerk reaction,” Patnaik pointed out. This is not a one-off discussion in a Council meeting. There was a Group of Ministers (GoM) which was set up, which after consultation and discussion, decided the GST [rate]. Every Finance Minister of this country is a member. They took that decision, and I’m sure they would have also weighed in all possibilities, [like] whether the distinction between a game of skill and a game of chance [gambling games] is a problematic thing.” 

Patnaik added that while the GST Council has GoMs, there is no scheme for public consultations on proposed laws. “There is no stakeholder consultation, they just discuss among themselves,” Patnaik observed. “Of course, the ministers can go back to their own states and hear from their secretaries and government. But, this is very different from the Standing Committees, where they actually have to hear the other side.” Patnaik acknowledged that while the IT Ministry held consultations before releasing the online gaming rules, “maybe the group of ministers did not do adequate consultation” before imposing the tax. 

“Whatever route the policy takes, even if it’s 28% on full game value, let that be through a public consultation,” argued Kazim Rizvi, founder of the think-tank The Dialogue. “I think that would be a good idea, more evidence-based discussion.”

2. Real money gaming companies camouflaging their games as ‘online games: “One of the things that I actually get a little unhappy about is that this has been called online gaming,” said MediaNama’s Editor, Nikhil Pahwa. “I think that we have to drive a distinction between the games that we play for entertainment and the games that we play for money. These are zero-sum games that we’re talking about, that’s why they’re real money gaming. It’s almost as if they’re trying to camouflage themselves by equating themselves with gaming. This is one tiny fraction of gaming in the world. So many of these games that we play are free-to-play. They’re supported by advertising. Those games are by no means going to get touched in any shape or form by these regulations.” 

“Even if you look at that antecedent in terms of the advertising we’ve seen [for them], they are advertised almost like crypto was being advertised,” Pahwa continued. “That you can earn X amount of money by playing this game…A recent Advertising Standards Council of India report says that 92% of advertisements for real money gaming did not carry any disclaimers about addiction…The report adds that online real money gaming is the most non-compliant industry when it comes to online advertising.”

Responding to the questions on responsible advertising, Co-Founder of gaming major WinZO Saumya Singh Rathore added that “in the garb of online games of skill, a lot of offshore betting and gambling companies were advertising in the mass media. The Central government has been successful to a very, very large extent in curbing them. But there’s some amount of that still happening. So, I’m not sure if Nikhil’s talking about players who are responsible players [that are misadvertising, or otherwise].” 

Over the last year, the Indian government issued multiple orders advising print and digital platforms against hosting betting and gambling ads.

3. Pahwa flags concerns with how online gaming rules were designed, aided camouflage: “I hope that the Committee on Subordinate Legislation looks at the rules because it is not within the remit of the IT Act for them [the IT Ministry] to create these new definitions and create an entire regulatory framework for online real money gaming,” Pahwa argued. “Secondly, they have sidestepped that entire determination of games of skill and games of chance and left it to self-regulatory organisations [SRO] to determine this. The SROs themselves are quite conflicted because they’ll be funded by the entity that they bring in. So, I would say that this also reflects poorly in terms of following processes. From the IT Ministry’s standpoint, they were in a hurry to legitimise this and also move some of this activity out of the limit of state legislation, on which there’s a case going on in Tamil Nadu currently. I think we need to look at this as a broader game that’s almost being played in terms of legitimising an industry that should have been legitimised by law.”

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4. GST hike echoes crypto tax—which killed the domestic industry: “It’s the same argument which was being made when the TDS and 30% tax were imposed on crypto transactions,” Patnaik recalled. “It is the same situation here. The crypto market is still not regulated in India. There is no regulation per se. The RBI had tried banning it, but the Supreme Court judgment [on the ban] didn’t give it that particular right. So, it’s in flux. But the tax still came in spite of that. We have heard from the crypto players all over during our Standing Committee on Finance deliberations complaining that this will kill the market. Actually, they were right. It did kill the market.”

5. WinZO explains how users engage with pay-to-play games: “We have approximately 100 plus games such as 8 ball pool, chess, ludo, carom, on our platform where players can play for micro-transactions, for an amount as little as one rupee,” said Rathore. 

“…By the way, none of these games are actually made by us,” Rathore added. “These are all third-party game developers who belong to the Indian gaming ecosystem, whose games were otherwise absolutely not monetisable…However, in India, even though games are consumed, monetisation was not something that happened well through in-app purchases. The alternative monetisation model was through microtransactions, which is also alternatively known as wagering on each game, a model which started happening since UPI launched…We have 150 million players on our platform, playing these games for real money…As a platform, we take a platform commission [for games played]. 99.99% of players on our platform are not playing these games for livelihood, because when they are actually putting in one rupee for a game which lasts only two and a half minutes, they’re not playing this to win one and a half rupees. They’re mostly playing this because this is a microtransaction. This gives them the fun of playing. There’s a social layer…”

6. Post-hike, why wouldn’t players want to cough up more to play their favourite games?: “Why do you say that the players themselves won’t be able to bear the burden?” Pahwa asked Rathore. “If I’m playing a game, and I’m playing it for entertainment, I’m not paying it for returns in that sense. Why would I not be willing to pay an additional tax that comes towards playing that game?”

Rathore highlighted recent changes to TDS levied on online gaming. “The player who wins will also have to pay 30% TDS [on top of the GST],” Rathore pointed out. “So net-net, we are saying that for every rupee that you enter with, if at all you get money back, then you are going to get less than 60%, which is not sustainable, which basically takes away this model completely, which is micro-transaction based.”

7. Industry wasn’t expecting the hike, assumed government support: “If you look at the past two years, the government has been very clear that they want to support the industry,” said Rizvi. “You had the IT Ministry becoming the nodal ministry [for gaming] last December. Then the IT rules come out. Before that, there is enough legal jurisdiction already with the Supreme Court and State High Courts, very distinctly differentiating between games of skill and chance…This gave investors the picture that India is opening up to the real gaming market, which gave opportunities to a lot of engineers, to folks to come up and create startups. There are more than 100 startups in this sector.”

“Suddenly what happens?” Rizvi asked. “The GST Council came up with this rule, which will really undo all the work in the last two, three years [by the government and industry]. You should have been very clear [with the industry] upfront, that look, we want to walk a very careful path…That should have been communicated right in the beginning. That was not the case…There has to be consistency in policy.”

8. Gaming addiction is a serious and under-addressed issue: “I’m not saying that there aren’t responsible players in the space,” Pahwa said. “But, there are many irresponsible players that have preyed on the vulnerabilities of people who maybe don’t know better, and given them get-rich-quick schemes. They’ve also been fed on the other side by the proliferation of easy payday loans, which don’t really look at what you’re taking the money for, but people would take loans to play these games. In fact, the addictions have become so extreme, that there are people who pawned family jewellery or took loans from family to try and win more.”

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“The problem of addiction is a very, very pertinent point and can happen whether it’s games played with micro-transactions, or with subscription models, or free-to-play models, that does not change that,” Rathore rebutted, noting some of WinZO’s anti-addiction measures. “I want to also talk about the platforms taking or giving [away] livelihoods. Both cases are not true. On average, people are spending 200 to 300 rupees on a platform—that [amount] does not give or take livelihood away.”

9. What about algorithmic accountability?: Responding to Pahwa’s concerns over algorithms rigging real money games to the detriment of users, Rathore argued that WinZO had safeguards in place:

“Our platform has aggregated 100 plus games…However, before we onboard games or developers, we actually send them for a certification which happens in the US. It’s very expensive, so I don’t think all the startups can do it. It’s called a no bot certificate. So, what they do is to ensure that the game in itself, or the game mechanism in itself, does not have an algorithm…They go through your entire code, they run simulations, they have an API call, and they give it [the certification] within a fixed time period.”

10. Gaming lawyer Jay Sayta recommends finding a ‘certain regime’, criticises GST authorities readying tax evasion notices for gaming cos: “The issue is not 28%. It should be 28%. It can be higher also,” argued Sayta. “But, just find a mechanism where you don’t tax every entry fee and make an industry worth billions of dollars go to zero in a day. Let’s not do that. Also, the aggressive demands that the [tax] department is going to issue show cause notices [to companies] is actually borderline, to use Arun Jaitley’s phrase, borderline tax terrorism.”

Reports from earlier this week suggested that GST authorities are planning to collect pending ‘gambling taxes’ from online real money skill gaming companies. 

11. The hike draws users towards offshore betting platforms: Citing this common argument raised by the industry, Rizvi added that “many [real money gaming] startups may decide to go to Dubai or Singapore, register over there, and still attract people to play the game. So you cannot ban this industry…What you will end up doing is killing your own industry and the people will then be playing games which are registered from Dubai. You cannot enforce your laws over there, you end up losing a lot of revenue, and you will end up having people who are addicted.”

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I'm interested in stories that explore how countries use the law to govern technology—and what this tells us about how they perceive tech and its impacts on society. To chat, for feedback, or to leave a tip: aarathi@medianama.com

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