Waiting For Another Gamble – on taxing gambling industry

Source- The post is based on the article “Waiting For Another Gamble” published in “The Times of India” on 14th July 2023.

Syllabus: GS3- Indian Economy – Mobilisation of Resources

Relevance- Taxation issues related to gaming industry

News- The government has proposed a tax rate of 28% on gaming industry.

What is the policy approach of the government to activities that are not regulated but are emerging very fast?

Except for Goa and Sikkim, where casinos are established as tourist attractions, there appears to be an unspoken policy consensus across states and political parties.

If an activity cannot be effectively regulated, excessively high taxation rates are applied. This approach has been observed for cryptocurrency trading and is now being applied to online gaming.

What will be the impact of the government ‘s decision to tax the gaming industry?

Presently, cryptocurrency traders are resorting to offshore online exchanges. Gamers are likely to find similar means. This will result in a loss of foreign exchange and hinder the enforcement of anti-money laundering regulations.

Multiple high court rulings have addressed the debate between skill and chance in gaming, and taxation methods applicable to online games. Despite these rulings, the gaming ecosystem is still facing uncertainty.

The proposed tax changes will not impact horse racing. Casinos will be adversely affected. State governments may attempt to alleviate the blow by reducing the state component of the tax.

Online games that involve prize money, such as rummy, will be heavily impacted, even though the courts had classified them as games of skill.

Games like “teen patti” and casual games funded through advertising revenue are expected to remain largely unaffected.

Many gaming companies will face financial challenges and could become unviable.

What could have been a better approach?

To mitigate the detrimental effects of gambling, it would have been suitable to implement measures such as setting betting limits based on gamers’ income proofs and conducting ID verifications.

Additionally, systems could be established to exclude gamers with substantial losses.

The regulation of gambling falls under the jurisdiction of state governments. According to the regulations, games that are primarily based on chance and involve cash rewards are generally prohibited unless expressly permitted by a state government.

Skill-based games receive some level of protection. It would be unfair to impose heavy taxation on these games. Taxation should not be imposed on the full-face value of these games.