The Central and state govt’s GST officers are working with online gaming sector experts to define 'games of skill' and 'games of chance' with a view to design different taxation structures for them, an official sources said. With several states arguing for a lower tax rate on those online games that require skill, the contentious topic of levying Goods and Services Tax (GST) on online games has lingered for more than a year.

They are of the opinion that games of skill should not be treated at par with games of chance. The absence of a clear definition often leads to tax notices being sent to online game portals and following litigations. The source said, the GST Council's Law Committee, which met in Bangalore on Saturday, discussed the issues concerning definition for 'games of skill' and 'games of chance' with technical domain experts.

They believe that skill-based games shouldn't be viewed equally with chance-based ones. Lack of a defined term frequently results in tax notices being made to online game sites and subsequent legal action. Sources claim that the GST Council's Law Committee convened on Saturday in Bangalore and talked with technical domain specialists about the definitions of "games of skill" and "games of chance."

As all states are not part of the law committee, the draft report on definition would be shared with all states for their views. Sources further said the Group of Ministers wants to present a report to the Council, which is legally tenable and cannot be challenged in the courts. The panel of ministers will consult all stakeholders before finalising its report. Only after a definition is finalised, a call would be taken on the tax rates to be levied and also on whether it should be levied on gross gaming revenue or deposits by gamers, sources said.

The meeting of the GST Council, chaired by the Union finance minister and comprising her state counterparts, is likely to be held by the end of December after the conclusion of state elections in Gujarat and Himachal Pradesh to consider the report of the GoM on taxation of online gaming, casinos and horse racing.

Earlier in June, the Group of Ministers, under Meghalaya chief minister Conrad Sangma, had suggested the GST Council that the online gaming sector should be taxed at 28 per cent. The GST Council, however, asked the GoM to further deliberate on the taxation of online gaming, along with casinos. Industry has been demanding that games of skill should continue to be taxed at a lower rate as a higher tax rate would substantially reduce the prize money. Currently, a 28 per cent GST is levied on 'games of chance', which involves some form of betting/gambling, while skill gaming sector pays 18 percent GST.

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