According to a recent report, 60% of online gamblers are apparently considering refraining from gambling due to rising tax rates. (Image source: Getty Images)
The government, represented by an additional Solicitor General (ASG) who did their best before losing the battle of Karnataka, had a brilliant game plan of clarifying the well-known and well-understood GST laws. The brilliant minds of the government, led by the ASG, nevertheless had an epiphany! They figured out that these so-called “games of skill” were just clever disguises for good old-fashioned betting. Who would have thought? They have always been convinced that what is declared in various case law to be “games of skill” is once again only a masquerade to show that bets are “games of skill” – in other words terms, part of an elaborate masquerade. According to ASG N Venkataraman, and as is available in the public domain, stakes are placed on uncertainties, anxiously hoping for predictions to come true, to reap rewards higher than the amount at stake.
New case law is established when he says that “horse racing may be a game of skill, but predicting which horse will win and betting money on that uncertain outcome, will only be a bet and therefore illegal under applicable law”. It would be a mistake to address the issue or try to distinguish between “game of skill” and “game of chance” in the context of betting, and it is nothing more than a simple game of illegal money! You just cracked the code here!
A perfect way out was found as he pondered the age-old question “why did the lawyer go to the art museum?” Because he wanted to frame the case”. While the lawyer was busy enjoying fine art at the museum, they had a moment of pure brilliance. They realized that before appealing the High Court order to the Supreme Court, the position can be consolidated with the proposal now made by the GST Council to impose 28% on GGR + Price Pool or, as our finance minister coined it, to be on “Full Face Value”. How delicious!
Forget all that tedious exercise in distinguishing between a game of skill and a game of chance. Who needs this? We’ll just put a heavy tax on everything and call it a day! Forget trying to figure out the intricacies of the law or the difference between legitimate skill-based activities and gambling. It’s just too much work! Let’s simplify it to the point where even a horse can understand it! And of course, the sheer shine gets brighter when, at the press conference, the Minister of Finance coined the term “Full Face Value”. It’s eye-catching, it’s trendy and it’s sure to confuse everyone.
But wait, there’s more! They also indirectly decided and sealed the fate of the industry by eliminating certain statutory positions and job openings by forming self-regulatory bodies, or SRBs. Who needs those pesky positions when you can simplify everything by stating that all skill-based games involve “bets”.
Doesn’t the above establish the basic principle that no GST should be paid on players’ contribution to the prize pool, which is in the form of an “actionable claim” ? Isn’t there a lack of appreciation that this is a fund held by the interest of traders for a brief period of time (i.e. from the time of players’ contribution before the start of a game until its completion) after which the prize pool is distributed to the winners. Prize pool is not a consideration for any service provided by gaming companies, nor are they in the nature of supplies. The convoluted and ambiguous world of taxation is a source of endless fun. It is truly remarkable how tax authorities manage to weave intricate webs of complexities around the simplest concepts. The prize pool is apparently not a consideration for services provided by online gaming companies. It’s just a magical pot of gold that mysteriously appears and disappears unrelated to the services rendered! Who needs services when you can save some money, right?
It is truly a joy to witness the revenue team’s systematic and well-planned approach in their quest to present an arguable case to the Supreme Court. And how lucky we are to receive this illuminating clarification on July 11, 2023.
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An endless game of tax roulette
One cannot help but admire the government’s commitment to resolve past ambiguities and fortify the future, even at the cost of some clarifying legislation that will be introduced in the monsoon session of Parliament. And let’s not forget the refusal to recognize or interpret as nomen juris the judgments of the Supreme Court on “games of skill”. Who needs the highest court of law when you can simply state that the entire industry is engaged in betting, gambling and lotteries. Entry 6 of Annex III of the CGST must be satisfied and delighted to have such a starring role!
Of course, we can’t ignore the fact that this statement conveniently removes the concept of “actionable claims” from the realm of providing goods and services, particularly when it comes to “games of skill”. “. Who needs the skill anyway, if you put everything under the umbrella of lottery and gambling.
And the sweet irony of it all! It seems that the importance of reporting games of skill by SRBs has been completely overshadowed by the unwavering determination to tax them like lotteries, betting or gambling. Who needs consistency and logical consistency when it comes to taxation? It takes a certain level of bureaucratic prowess to maintain such a contradiction. I mean, why bother applying a little common sense to determining eligibility when, for tax purposes, anything can just be interpreted and declared as lottery, betting or gambling? It’s like playing an endless game of tax roulette, where the rules change according to the whims of the authorities.
And let’s not forget the IT Amendment Rules 2023 (gaming amendment), which prohibits betting. It’s absolutely hilarious how the same activities that are prohibited under these rules are conveniently labeled as taxable entities in the realm of taxation. It’s almost like they’re saying, “We forbid you to do this, but we still tax you for doing it.
Now, here’s some news you might be interested in: according to a recent report, 60% of online gamers are apparently considering refraining from gambling due to rising tax rates. Who would have thought that taxing something heavily would discourage people from engaging in it? Is anyone surprised?
We can simply offer perplexity to this circus of contradictions and unintended consequences, thanks to a convoluted web of rules that leave everyone scratching their heads. It’s just another day in the world of taxation. There will surely be more mind-blowing interpretations and jaw-dropping leaps of logic in the future.
The author is an independent lawyer and columnist.
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