53rd GST Council Meeting Ignores Online Gaming Tax Woes, Industry Concerns Persist

The Indian real-money gaming industry was left disheartened on June 22 when the 53rd GST Council Meeting failed to address pressing concerns over the controversial 28% GST on initial deposits and the crippling retrospective tax demands. This disappointment came despite widespread speculation in mainstream media and industry circles, leading to a temporary surge in share prices of publicly listed gaming companies like Delta Corp and Nazara Technologies before the news caused them to settle down.

The silence on this issue is a significant setback for the industry, which has reported revenue losses exceeding 50% since the tax hike. Adding to their woes are retrospective tax demands exceeding ₹1 Lakh Crore on 99 gaming firms, a matter currently pending adjudication before the Supreme Court.

Newly re-elected Union Finance Minister Nirmala Sitharaman confirmed the omission in a post-meet briefing: “It wasn’t on the agenda. It didn’t come for discussion. It wasn’t taken up.” This leaves the industry in a state of uncertainty, with hopes for relief now pinned on the next meeting, tentatively scheduled for August-September after the Union Budget.

GST Council Meeting: A Mixed Bag for Businesses

The GST Council meeting offered some relief to other sectors, including-

Legal Insights and Glimmer of Hope

Jay Sayta, a prominent technology and gaming lawyer, echoed the industry’s disappointment but also highlighted a potential silver lining. He referenced a decision in the 51st GST Council meeting to review the new taxation regime six months after its implementation in October 2023, which would have been due in March. While this review is long overdue, the RMG industry remains hopeful that a comprehensive discussion will occur in the upcoming August-September meeting.

Sayta pointed to a proposed new provision in the GST Act (Section 11A) as a potential lifeline. This provision could empower the government to regularize short or non-levy of GST if it was not paid due to common trade practices, a scenario that aligns with the retrospective tax demands on online gaming companies. Sayta believes this amendment if passed, could be a crucial first step towards withdrawing the retrospective notices issued to over 70 online gaming companies and restoring investor confidence in the sector.

Sayta highlighted this development: “As far as retrospective show cause notices to online gaming and casino companies are concerned, it is encouraging that the GST Council has recommended insertion of a new provision in the CGST and SGST Acts, i.e., Section 11A that would give power to the government, based on the recommendations of the council, to allow regularization of short or non-levy of GST if such tax was not being paid due to common trade practices.”

He elaborated, “Since the entire online gaming industry was paying tax only on Gross Gaming Revenue (GGR) or margins until 1st October 2023 and it was a common trade practice, the amendment, once passed by parliament and state legislatures, will potentially be a first step to enable the government to withdraw retrospective show cause notices issued to over 70 online gaming companies based on the erroneous computation of face value of each bet instead of the common trade practice of GGR.”

Extremely encouraging development for online gaming & casino companies, which have been struggling with retrospective GST showcause notices worth over Rs. 1 lakh crore.

In today's meeting, the GST Council approved insertion of S. 11A in the CGST Act, which will government,…

— Jay Sayta (@jnsayta) June 22, 2024

The Road Ahead

With the industry’s future hanging in the balance, the next GST council meeting and the Supreme Court hearing on July 15 are critical milestones. The industry’s survival may hinge on their outcomes as it grapples with a complex and challenging regulatory landscape.

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