In a blow to India’s already embattled online gaming sector, the Supreme Court has ruled that game of skill such as poker, fantasy sports and rummy do constitute gambling and are therefore subject to a 28% Goods and Services Tax under the country’s GST law.
More importantly, the court upheld the government’s position that taxes should be paid retrospectively – including before the GST framework was updated in 2023 – and that they should apply to the full face value of bets placed rather than to gross gaming revenue.
Even while a Supreme Court decision on whether the online gaming industry is valid at all remains in limbo following a shock decision by the Indian parliament in August to ban all real-money online gaming, such a method of calculating tax would appear to deal a fatal blow to the sector. It is estimated, according to local media reports, that back taxes owed could amount to US$14 billion sector-wide.
This week’s Supreme Court ruling found that, “The character of betting and gambling does not depend exclusively upon whether the underlying activity is a game of skill or a game of chance but upon the existence of stakes placed upon uncertain future contingencies.”
The legal representatives of online gaming companies challenging the application of a 28% GST and its retrospective nature had argued that such imposition contradicted more than six decades of jurisprudence – the theory and philosophy of law – as previously laid down by the courts. Specifically, they claimed that games of skill could not be classified as gambling because operators do not supply actionable claims to players and generally involve contributions to a prize pool instead. They also argued that applying such interpretation to games of skill implied that social games played between friends and family at home must also be considered illegal gambling.
The Supreme Court rejected those claims, ruling that the GST law was neither arbitrary nor unfair.
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