50th GST Council Meeting: The Goods and Services Tax (GST) Council on Tuesday (July 11) decided to impose a 28 per cent tax on the turnover of online gaming companies, horse racing and casinos, finance minister Nirmala Sitharaman said. The panel, headed by the Union finance minister and comprising of representatives of all states and UTs, decided on tax rate based on recommendation of a group of ministers that looked at taxing casinos, horse racing and online gaming.
The issue before the GoM (group of ministers) was whether to impose a 28 per cent GST on the face value of bets, or gross gaming revenue, or just on platform fees. Sitharaman said the tax will be levied on the entire value.
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The tax on online gaming companies would be imposed without making any differentiation based on whether the games required skill or were based on chance.
Finance Minister Nirmala Sitharaman said the decisions related to 28 percent GST on online gaming and casinos was not aimed at targeting any particular industry. The decisions were intensive, and was taken after consultation with all the members, including those representing states like Goa and Sikkim, where casino forms a key part of the tourism sector.
Experts believe that the GST rate is a major setback for Indian players.
Federation of Indian Fantasy Sports said that this decision will have a chilling effect on the USD 2.5 billion of FDI already invested by investors and jeopardise potentially any further FDI in the sector.
“We are disappointed that the GST Council and authorities have chosen to apply 28% GST on the total entry amount including prize money. As pointed out by FIFS and many of its members on numerous occasions, a change in valuation to tax on the total consideration will cause irreversible damage to the industry, loss of revenue to the exchequer, and loss of employment for lakhs of skilled engineers. Needless to add, Further, this decision will shift users to illegal betting platforms leading to user risk and loss of revenue for the government. We humbly request the GST Council and the Government of India to reconsider this decision,” said Joy Bhattacharjya, Director-General, FIFS.
Ankur Gupta, practice leader, indirect tax at SW India, said, “Ignoring the long-time demand of the gaming industry, levying a 28% tax rate on the gaming industry will be a big setback for Indian players. We will need to see the fine print of notification if any exceptions are created. We might immediately see notices being issued to the gaming players for differential tax and with this new series of litigation.
Gupta added that with the advent of technology and the use of handheld devices, the online gaming market is fast growing at US$ 3 billion with more than 400 million users and is expected to grow rapidly in the next half a decade. Therefore, it was important to put taxability at par with global tax rates so that the Indian industry remains competitive.
“In most countries the online gaming industry is taxable more or less at par with the current taxability of 18%, therefore, it’s a disadvantage for Indian game companies if the taxability moves to 28%. Even on the valuation, the taxability seems to be on the face value and not on margin / platform fee. Taxing the entire pool value will adversely impact the customers as well as they would get less playable value,” Gupta added.
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Sudipta Bhattacharjee, partner, Khaitan & Co., said, “While the 28 % rate is detrimental to the online gaming industry, the chargeability on full value is what is going to hurt the gaming companies to an extent it may lead to its extinction. This is completely against the vision of the government to promote online gaming in India.”
“The findings of the Karnataka High Court in Gameskraft with respect to the distinction between a game of skill and a game of chance has not been appreciated. It will need to be seen if the prescribed methodology to tax online gaming will pass the test of constitutionality. In any case this cannot be implemented retrospectively,” Bhattacharjee added.
Background
A group of ministers was constituted to prepare a report on the tax levy on online gaming. The GoM, convened by Meghalaya Chief Minister Conrad Sangma, has members from eight states- West Bengal, Uttar Pradesh, Goa, Tamil Nadu, Telangana, Gujarat and Maharashtra.
The GoM in its first report submitted to the GST Council in June 2022, had suggested that 28 per cent Goods and Services Tax (GST) be levied on full value of the bets placed, including the contest entry fee paid by the player on participating in the game. In cases of race courses, the GoM recommended that GST be levied on the full value of bets pooled in the totalisators and placed with the bookmakers.
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