Despite variations in valuation norms and tax policies among different states regarding online gaming and casinos, the Goods and Services Tax (GST) Council took a unified decision during its 51st virtual meeting on Wednesday. It was agreed that a 28% tax would be applied at the entry level for these activities.
However, the Council also introduced certain exemptions to provide relief to players. They decided against imposing the tax on the amount used in subsequent games or bets, which were won from previous gaming sessions in online money gaming. Similarly, the tax would not be levied on the overall value of each bet placed, as is customary in physical casinos.
Union Finance Minister Nirmala Sitharaman acknowledged that the decision regarding the 28% GST on online gaming and casinos was not unanimously agreed upon, unlike the previous GST change on the lottery. While some states expressed dissent, the majority of states urged for the early implementation of the decision made during the last Council meeting.
During the previous meeting held on July 11, the GST Council had reached a consensus to impose a standardized 28% tax on the full face value of online gaming, casinos, and horse racing.
The new tax levy is slated to become effective on October 1. As the head of the Council, Finance Minister Nirmala Sitharaman announced that a thorough review would be conducted after six months of its implementation.
Sitharaman clarified that the valuation for the tax would be based on the amount paid or payable or deposited with the supplier by or on behalf of the player. The tax would exclude the amount used in games and bets, which were won from previous gaming sessions.
The tax would be applied at the entry-level, considering the initial payment made to acquire chips, rather than on the total value of each bet placed in subsequent games.
Referring to statements made by the Meghalaya Chief Minister during the Council meeting, Finance Minister Nirmala Sitharaman highlighted the existing practice of applying an 18% GST on the gross gaming revenue or platform fee, which ultimately results in net revenue of only 8-9%.
Sitharaman further explained that if the GST rate is increased to 28% on the gross gaming revenue, the collection would still be relatively low, at approximately 11-12%. She emphasized that the current tax revenue from gaming is significantly less than what is levied on essential household goods. She emphasized the nature of gaming as a wagering activity, which justifies the government’s stance on the tax rate.
Illustrating with an example, she elucidated that if a player places a bet of Rs 1,000 and wins Rs 300, and then decides to bet Rs 1,300 again, the GST will not be imposed on the winning amount of Rs 300.
Officials will now focus on the necessary legal amendments, expected to be addressed during the ongoing monsoon session of Parliament. Subsequently, states will also introduce corresponding amendments in their state GST laws.
“The implementation date for this decision is targeted for October 1, allowing sufficient time for states to pass the necessary amendments to their laws. Goa and Sikkim, due to their status as smaller states with casinos, requested consideration, which the Council acknowledged. A review of the implementation will take place after six months, not from today’s date, but from the actual implementation date,” clarified Sitharaman.
During the Council meeting, at least three states expressed their dissenting views. Delhi sought a comprehensive review of online gaming, while Goa and Sikkim advocated for the imposition of GST on gross gaming revenue while supporting the higher 28% tax rate.
Tamil Nadu, which had already banned online gaming, requested a legal amendment to ensure that online gaming remains non-taxable within the state.
Revenue Secretary Sanjay Malhotra assured that the concerns raised by Tamil Nadu would be addressed and resolved accordingly.
In a collective statement, The Federation of Indian Fantasy Sports and E-Gaming Federation expressed their appreciation for the Government’s response to the industry’s concerns regarding repeat taxation. While the new tax framework resolves uncertainty, it also imposes a significant 350% increase in GST, posing a substantial burden on the Indian online gaming sector.
Offshore gaming platforms will be required to register with the GST authorities, as stated by Malhotra. Non-compliance with this requirement will lead the government to utilize provisions from the Information Technology Act to block those sites. Additionally, any payments made through virtual digital assets will be subject to the GST rate of 28%.
Meanwhile, on Tuesday, the Centre filed a Special Leave Petition in the Supreme Court, contesting the recent Karnataka High Court ruling that invalidated a Rs 21,000-crore show-cause tax notice issued to Bengaluru-based Gameskraft Technology Private Ltd (GTPL). The Revenue Secretary clarified that the 28% tax on online gaming had always been in place, and the Council is now providing clarification while abiding by the Court’s decision on the matter.
Despite this challenge, the industry sees an opportunity to innovate and revitalize the foundation of gaming in India, offering gaming companies a chance to adapt and grow.
