GoM Likely to Recommend Raising GST Slab on Online Gaming to 28%, Operators Expected to Pass on the Tax Burden to Players

The country’s online gaming sector may be up for rough times ahead. The Group of Ministers (GoM) constituted by the GST Council to decide on the GST rates for online gaming, lottery, and horse racing held their scheduled meeting in Delhi on Monday, May 2. The GoM reportedly agreed to recommend GST at a flat 28% slab from the existing 18% on skill games. The GoM is likely to recommend doing away with a separate categorization of “skill” and “chance” gaming while computing GST.

Currently, games of chance such as racing, betting, and lotteries are charged 28% GST. In comparison, 18% GST is being levied on the online gaming sector, which comprises fantasy gaming, online poker, online rummy, and other skill games.

The GoM will also evaluate another critical aspect – it will recommend a valuation method for charging the GST, which will be discussed in the next meeting. For this, the GoM has tasked a committee of officers to suggest whether to levy the tax on the contest entry amount (CEA) or the Gross Gaming Revenue (GGR) platform fees charged by operators. Basis the committee’s report, the GoM will finalize its recommendations to the GST Council in a meeting to be held in mid-May, likely to be on May 18.

After the meeting on Monday, the GoM convenor Meghalaya CM Conrad Sangma pointed out that online gaming is a booming sector with an annual turnover of ₹30,000 Crores and an annual growth of 20-30%. But he underlined – “We have to keep the society, the Centre, the state governments, and the industries in mind before deciding.”

He further informed that the group also discussed whether there should be a standard GST or different rates on online gaming.

Sangma also shared images of the meeting in his tweet.

Chaired a meeting of the Group of Ministers (GoM) on casinos, race courses & online gaming. Thank all the Hon’ble Members for their submissions and their views. We look forward to finalising our discussions and submit our report soon. @nsitharaman @GST_Council @FinMinIndia pic.twitter.com/pFE8GtvgHZ

— Conrad Sangma (@SangmaConrad) May 2, 2022

Incidentally, Sangma is one of the frontrunners behind bringing in a regulated and licensed gaming regime in his state. Despite his support for regulated online gaming, Sangma did not want to steer the GoM towards a rational decision to keep the GST rate on online gaming unchanged at 18%.

During the meeting, several members also raised concerns that GST on learning-based gaming should not be increased from the current 18% slab since these don’t lead to gambling and betting.

Talking to reporters, West Bengal Finance Minister Chandrima Bhattacharya divulged that the GoM had reached a consensus to increase the GST on casinos, racecourses, and online gaming to 28%. Bhattacharya added – “There should be no difference between skill gaming and chance gaming. These activities have a direct adverse impact on the society at large by pushing children towards gambling.”

Apart from Sangma and Bhattacharya, the other members of the GoM include Deputy CM of Maharashtra, Ajit Pawar, Gujarat Minister of Finance, Kanubhai Patel, Minister of Transport and Panchayati Raj of Goa, Mauvin Godinho, Tamil Nadu Finance minister, Dr. Palanivel Thiaga Rajan, UP Finance minister Suresh Kumar Khanna and Telangana Finance minister Thanneeru Harish Rao.

Higher GST – Ramifications

Following are the GST currently being charged by the different gaming sectors:

> Online gaming (poker, rummy, fantasy sports) – 18% GST on the rake or commission collected from the gaming platforms (GGR)

> Casinos – 28% GST on casino entry fee, additional/lower tax slabs related to food, liquor, other services

> Lottery – 28% of the purchase value of lottery tickets

> Horse-racing – 28% of the commission withheld by bookies or the tote on the bets

While GST increase will make running online skill games a more expensive proposition, the operators are likely to hand down the tax load to players who will find higher tax additions in the rake impacting their net winnings. This will be a significant loss for professional players already buckling under the exorbitant TDS and rake deductions. A higher rate of GST will also hurt the growth potential of the online gaming industry.

What Next?

Last May, the GST Council set up a GoM to look into the GST rates levied on online gaming, casinos, and horseracing. Reconstituted twice by the Union Ministry of Finance, GoM met for the first time on Monday to discuss the mandated Terms of Reference (ToR). The GoM is mandated to evaluate best practices, i.e., how GST is being levied in other sectors.

Once the GoM submits its recommendations, the buck will pass on to the GST Council to finally decide on the GST rates for online gaming, casinos, and horseracing.