GST Council Defers Decision on 28% GST on Online Gaming, Casinos & Horse Racing

The much-awaited 47th meeting of the Central GST Council took place in Chandigarh on June 28-29. The meeting was of particular interest to the Indian gaming sector since the Council was to deliberate on the report submitted by the Group of Ministers (GoM) on taxation on casinos, horse racing, and online gaming that recommended a uniform 28% GST on all of these sectors.

In what comes as a temporary, stop-gap relief, the Council, chaired by Union Finance Minister Nirmala Sitharaman, decided to defer its decision for the gaming sector. Sitharaman said that the GoM recommendations on horse racing, online games, or casinos primarily highlight the view that these activities are “gambling” and should be taxed accordingly.

During the meeting, Goa CM and the state Finance Minister Dr. Pramod Sawant called for further discussions on the GST rate for casinos. He said that the Council should consider casinos differently from the other activities. She added that based on these discussions, the Council directed the GoM to return to the drawing board. It has asked the GoM to “re-examine the issues based on further inputs from States and submit its report within a short duration,” which has been set for July 15. The Council will consider the GoM recommendations in its next meeting, slated to be held in Tamil Nadu, Madurai, in August.

Union Minister of State for Finance Pankaj Choudhary, Finance Ministers of States & Union Territories, and senior officers of the Ministry of Finances and states, Union Territories were also present at the meeting.

The GoM Recommendations

The GoM headed by Meghalaya CM Conrad Sangma had made the following recommendations –

> For casinos, 28% GST be charged at the total face value of chips or coins purchased from the casino by a player. No further GST is to be applied to the value of bets placed in each round of betting, including those played with winnings from previous rounds.

> Impose a flat 28% GST on casinos, race courses, lottery, and online gaming

> GST be charged on the entry fee paid by the player to enter a fantasy match or a poker tournament.

> No distinction be made on games of “skill” and “chance” when levying GST

> For race courses, GST to be computed on the total value of bets is to be pooled in the totalizator and placed with bookmarkers

Will the Gaming Sector Sustain at the 28% GST Slab?

Technology & Gaming Lawyer Jay Sayta seemed to agree with the GoM’s recommendation to increase the GST on all real-money gaming to 28%. However, he called the proposed valuation methodology absurd and underlined that it would cause irreparable harm to the online gaming industry if brought in. In a commentary on Swarajamag.com, Sayta said, “Although platforms offering games of skill are currently paying GST at 18 percent, there cannot be much quarrel on the GoM’s recommendation to increase the rate to 28 percent. Indeed, when other goods or services such as cement, aerated beverages, automobiles, air conditioners, cameras, etc. are placed in the highest tax slab of 28 percent, there is no reason why online games and gaming, which is a recreational activity, should not be placed in the same slab, especially in the post-covid times when the government is desperately looking to shore up its tax revenues and reduce the fiscal deficit.”

As for the proposed valuation methodology suggested by the GoM, Sayta added, “Currently, online gaming operators are rightly paying GST only on the revenue they are making, i.e., the platform fee or commission that they are retaining from the customers and not on the entire prize pool. The GoM’s proposal to make the entire contest entry fee, which is essentially distributed back to the players, subject to a 28 percent GST is as absurd as making a stock broker pay GST on the entire traded value of stocks rather than just the brokerage that he charges.”

He pointed out that higher GST will also reduce tax collections from the industry since “most players will continue to game on illegal or grey online gaming websites without paying any tax.”

Times Now quoted Saket Patawari, Executive Director, Nexdigm, an independent global corporate advisory company, “Looks like India wants to deliberate and think more before deviating too much from the prevalent global tax rate, while still be able to balance the GST rate between a game of chance or game of skill. The industry further expects clarity on the term “initial gaming amount,” which is assumed to be largely covered as the contest entry charges. If left unclarified, such assumption could lead to undue litigations.”

A 28% GST charged at face value of the total of the consideration paid by the player to enter a contest or game will dissolve the “skill-game” and “sportified” form in which online games have evolved. As Sayta said, it will push players to the grey market resulting in a lose-lose situation for the government and the gaming operators.

While the 28% GST on all forms of real-money gaming, casinos, and horse racing is almost certainly going to be implemented soon, what remains to be seen is the methodology of taxation that the GST Council adopts for these sectors.

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