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Stirring up the issue of Goods and Services Tax levied on the various real-money gaming activities in the country, the (GST) Council has set up a seven-member Group of Ministers (GoM) to look into the issue. The panel has been tasked to look into the valuation of services offered by casinos, racecourses, and online gaming platforms like poker, rummy, and fantasy sports websites. The GST Council issued an office memorandum on the same on Monday.
The Council has identified four-point terms of reference for the GoM to work on. One of the prime focal areas will be assessing the current valuation of services in the gaming industry and determining if any alternative tax structure can be adopted for these services. The terms state – “To examine where any change is required in legal provisions to adopt any better means of valuation of these services.”
The GoM is being spearheaded by Deputy CM of Gujarat, Nitin Patel, and includes:
Maharashtra Deputy CM – Ajit Pawar
Arunachal Pradesh Deputy CM – Chowna Mein
Tamil Nadu Finance Minister – P. Thiagrajan
West Bengal Finance Minister – Amit Mitra
Goa Transport Minister – Mauvin Godinho
Karnataka Home Minister – Basavaraj Bommai.
The panel has to submit its recommendations to the GST Council (chaired by the Union Finance Minister) within six months.
What the GoM Will Evaluate
Here’s a quick look at 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
> 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 total bet value, including prize money won by punters
The GoM will evaluate all gaming sectors basis the following terms of reference:
> To examine the issue of valuation of services provided by casinos, racecourses, and online gaming portals and taxability of certain transactions in a casino regarding the current legal provisions and orders of courts on related matters
> To examine whether any change is required in the legal provisions to adopt any better means of valuation of these services
> To examine the administration of such valuation provision if an alternative means of valuation is recommended
> To examine the impact on other similarly placed services like lotteries
Possible Implications on Online Gaming
The GST Council’s move to re-evaluate the current valuation parameters of the gaming sector sounds like a warning bell. The tax authorities have been pitching for a higher GST slab for the real-money gaming sector for the last few years while simultaneously fighting for a reclassification of the services.
Currently, online poker, fantasy gaming, and rummy portals charge 18% GST on the rake or platform fee they collect from players and pass this on to the government.
The worst-case scenario for the industry should likely be the GST slab for online gaming services hiked to 28%. This will be a significant loss for professional players already buckling under the TDS and rake fee deductions.
Further, in the unlikely event the GoM recommends to the GST Council that the online gaming services be reclassified as the gross value of the bets placed, instead of the rake or platform fees as measured currently, it could very well spell the end of the industry. However, as we mentioned before, this is a highly improbable possibility for two reasons.
1. The Supreme Court order dated December 2019 upholding the Bombay High Court decision that fantasy portal Dream11 was hosting “games of skill” and was correct in paying 18% GST on the fees retained from the players’ pool.
2. Online gaming has charted a phenomenal growth in India recently, becoming a significant source of tax revenue for the government. According to market experts, India’s gaming industry could be worth $1.1 Billion by the end of 2021. A KPMG report dated September 30, 2020, emphasizes that gaming is among the fastest-growing segments. Underlining this trend is the fact that the sector has witnessed a slew of fresh investments in just under a year. In this context, it will be fool-hardy to assume that the GST Council will be looking at bringing an entire industry down by setting GST rates under an unfeasible structure.
GST on Lotteries
All lotteries in India come under the 28% GST tax slab, a rate that’s been in effect since December 18, 2019, when the GST Council announced a single tax rate of 28% on lotteries across the country.
GST on Horse Racing
GST on horse racing is levied on the entire bet value, or the total face value of any or all bets paid, including the commission charged by the club. Before June 2017, the sector was being taxed at an average of 7.6%. However, 28% GST is being levied on horse racing thereon.
In June 2019, the Turf Authority of India (TAI), an organized association of six horse racing clubs in India, urged the Union government and states to rework the applicability of GST on horse racing. The TAI pushed for lower, i.e., 18% GST. It recommended that GST be charged on the commission or service fee retained by a race club and exclude the winner’s prize money.
The issue was raised at the Fitment Committee by Tamil Nadu, West Bengal, and Karnataka. The committee had recommended that GST on horse racing should be payable only on commissions excluding the prize money.
Is a Revaluation of GST Needed?
Even though largely unlicensed, real-money gaming is highly taxed in India, and the high GST range from 18% to 28% has been a bone of contention for gaming companies.
There was a massive spike in gaming traffic during the COVID-19 led lockdown last year, and the sector continues to grow and attract bigger crowds and investments. Unsurprisingly the Finance ministry wants to look at the possibility of charging a higher GST on these activities.
Indirect tax partner at KPMG, India, Harpreet Singh, told ET – “Applicability of GST on online gaming, classification of the same as a game of skill vs. game of chance, the taxable value on which GST needs to be paid, i.e., gross value including prize money vs. only platform fees, etc. are areas which require clarifications, and hence the initiative by the government to form a GoM to look into all these issues.”
Senior partner at AMRG and Associates, Rajat Mohan, pointed out to Businessworld, “Online gaming companies are in nascent stages in India, leading to multiple unresolved issues around taxation and valuation, posing a big challenge for the entire industry. Now a GoM has been constituted to understand, examine and resolve the uncertainty surrounding the valuation of services by casinos, racecourses, and online gaming companies.”