Think Change Forum (TCF), an independent think tank dedicated to generating new ideas and finding solutions for navigating the post-pandemic world, today released recommendations based on a roundtable on 'What is the right taxation approach for a sunrise sector like Online Skill-Based Gaming?'.
The event had five eminent panelists: Mr. Rohan Shah, Senior Counsel Supreme Court; Mr. Trivikraman Thampy, Online Games Entrepreneur, Founder-CEO Games24x7; Mr. Swapan Sarkar, Chief Executive, Sarkar & Associates; Mr. Suraj Malik, Managing Partner, Legacy Growth Partners; and Dr. Ramakrishnan Thiruvananthapuram S, Public Policy Analyst.
The discussion focused on the challenges and improvements needed in the taxation system relevant to sunrise technology businesses like online games.
An AVGC (Animation, Visual Effects, Gaming and Comics) Promotion Task Force report, constituted by the government has proposed a national AVGC-Extended Reality Mission with a budget outlay to be created for integrated promotion and growth of the sector. In
India, the Online Skill-Based Gaming (OSG), is already a $2.5 billion industry with a CAGR of over 38 per cent and is projected to grow to $20 billion by 2030 in terms of revenue.
To fully realise the potential of this sector, the panel felt the need for a clear and consistent approach to personal taxation, failing which the proposed budget outlay for AVGC sector promotion will be put to risk and government will lose thousands of crores in taxes. Essentially, there is a need to overhaul the archaic sections 194B and 115BB of the Income Tax Act, 1961 and ensure that the taxes paid by players do not go beyond their net earnings. India needs to bring income from gaming activities at par with global practices and allow costs and losses from gaming activities to be offset against the income. A high 30 per cent TDS on regulated platforms is making offshore untaxed platforms who don't deduct these taxes, to thrive making the government lose taxes & foreign exchange and putting players to higher risk.
Experts believe that taxation is not a suitable instrument for forcing disciplined behaviour among players, which is better achieved through technological interventions.
Rohan Shah, Senior Counsel Supreme Court, said during the discussion: "Gaming sector is a new age opportunity while the tax relevant provisions are from another era namely 1961, 1972 and 1986. So an industry of 2022 and tax provisions from the 1970's are very clearly not dovetailing with each other. From a direct tax perspective, you first identify what is taxable. There are three elements here. Firstly, Section 115BB says that anything that accrues from horse racing, gambling, betting or crosswords etc will be taxed at a full tax rate which is 31.2 per cent. Another issue is TDS under Section 194B, which is deducted upfront. And the third element is Section 58(4), which does not allow for any set-offs. There is no contemplation of any loss here, since in the 1970's crosswords was not seen as an industry!
"If we are to have the ability to create a global gaming industry and create allied industries then we should also look at other countries on how they are tackling this issue. In the US, income from gaming is treated as normal income where you can claim your deductions. In the UK, winnings are not subjected to any income tax at all."
Trivikraman Thampy, Online Games Entrepreneur, Founder-CEO Games24x7 said: "Discussions in the public domain have talked about tax evasion to the tune of tens of thousands of crores in the industry which is not the case and stems from a lack of understanding of the core business model of the industry. Unlike gains in contests like lotteries where one competes with thousands of others at a given point of time, gains in any single online skill game are not massive because it is only between a few players. So, even if a player wins 70 per cent of the games, the player will have to go out of pocket to pay the taxes. If the laws written keeping in mind crosswords and lotteries were to be implemented in online gaming, the implications would be disastrous. The growth that we are talking about in the sector will come to a grinding halt. Unlike the stock market, gaming
players can go to online global gambling platforms which are illegal and outside any tax net and where they need not pay any tax as the geographic boundaries for digital transactions are very porous.
"Certifications for operators will help consumers to identify legal platforms and will keep illegal operators away, grow the domestic industry and enable tax revenue for the government. Whether it is regulation, consumer protection, indirect taxes, everything has to be thought through together and not in a piecemeal manner."
Swapan Sarkar, Chief Executive, Sarkar & Associates, said: "We need a very simple easy to interpet tax regime for a sunrise industry like OSG. Income tax means that taxability has to be on the income and not beyond that. Section 115 talks about winning from lottery and crossword puzzles --which cannot be on the same page since one is a game of luck and the other is of skill. As far as deductions are concerned there are provisions in the income tax laws that can be emulated. Let's look at rental income where a 30 per cent ad hoc rebate are provided for repairs and maintenance of the property, this can be applied in the gaming sector also where you can have an ad hoc provision in the earnings. Any technology or internet-based activity will pose challenges and a high-powered committee consisting of technology, tax and financial experts need to make a pragmatic and easy policy."
During the discussion, Suraj Malik, Managing Partner, Legacy Growth Partners, said: "Tax laws need to be interpreted in a certain
way, which currently seem to allow the operator to deduct tax only at the time of payment of the winning amount exceeding the threshold of ten thousand. Nonetheless, for a player the entire winning amount is taxable and it is complex to figure out the final tax liabilities due to ambiguity in law. For example, Section 58 is the spoiler by which a player is not permitted offset any expenditure or losses against winnings or adjust losses and winning across gaming platforms. Tax provisions for online skill based gaming need some clarification, so that the industry continues to grow with certainty on a reasonable tax policy and is distinguished from how we understand gambling.
"The law has to give certainity and for these changes can be made incrementally within the existing provisions which can come either as clarifications by CBDT or changes in the relevant sections."
Ramakrishnan Thiruvananthapuram S - Public Policy Analyst, said: "I agree that the tax policy has to be consistent, non-ambiguous and pragmatic so that it works on the ground if India has to turn into a global gaming hub. Gaming is an innovative and creative field and even the Supreme Court has confirmed that online gaming is a matter of skill. To nurture it in the right manner and prevent global gambling platforms from usurping our legitimate domestic platforms as well as eat into the tax revenues of the government there is a need of rationalisation of the taxation policy. Offsetting should be very much permitted as is happening in the stock market. Reasonable restrictions is fine and limits can be set for players depending on their profile but a ban is not the solution because there is a definite demand for such games of skill."