BREAKING NEWS: GST Council Disappoints, Finalizes 28% GST on Initial Deposits on Online Gaming & Casinos With Tentative Start Date of October 1

Dealing a devastating blow to the online gaming and casino industry, the GST Council, in its virtual meeting on Wednesday, August 2, stood firm on its July 11 decision to levy 28% GST on the online gaming and casinos sectors, clarifying that the tax will not be on each contest entry but on initial deposits. Concerned amendments to the CGST law are expected to be tabled in the Parliament’s monsoon session, which will run till August 11, with the centre planning to enforce the new tax regime from October 1, 2023.

The meeting, chaired by Union Finance Minister Nirmala Sitharaman and attended by state finance ministers and Union Minister of State (MoS) for Finance Pankaj Chaudhary, started at 4 PM.

Here are the highlights of the Council’s decisions:

> No change in decision to levy 28% GST on the full face value of bets placed on online gaming. Tax is to be on initial deposits and not every contest entry.

> The decision will be implemented from October 1.

> The GST Council will review the implementation of 28% GST on online gaming and casinos after six months.

> Council recommended certain amendments in the CGST Act 2017 and IGST Act 2017 to provide clarity on the taxation of supplies in casinos, horse racing and online gaming

> Council recommended inserting a specific provision in the IGST Act, 2017 to provide for liability to pay GST on the supply of online money gaming by an offshore supplier to a person in India, for single registration in India for such supplier and to block access to any offshore operator who fails to comply with the said provisions

> Council clarified the definition of online gaming, including games of skill and chance, and covering online money gaming.

> Council to include a new definition of “online money gaming,” meaning games where players pay or deposit money or money’s worth, including virtual digital assets, in the expectation of winning money, thus adding a new provision for inserting a definition of “virtual digital asset,” which will have the same meaning as considered in the Income Tax Act.

Following discussions, Nirmala Sitharaman addressed the media in a press conference. She informed that the Delhi Finance Minister Atishi Marlena opposed the decision to impose the tax on online gaming, while Goa and Sikkim called for levying tax on GGR (gross gaming revenue) and not on the face value. At the same time, Sitharaman pointed out that the states of West Bengal, Chhattisgarh, Karnataka, Gujarat, Himachal Pradesh, Maharashtra and Uttar Pradesh sought that the Council’s previous decision remains unchanged and the decisions should be implemented at the earliest.

The new tax regime, after amendments to the concerned legislature, is likely to come into effect from October 1. Sitharaman also said amendments to CGST law are expected to be tabled in the monsoon session of the Parliament.

Sitharaman said, “The council recommended that valuation of supply on online gaming and supply of actionable claims in casinos, the Council recommended that valuation may be done based on the amount paid or payable or payable to or deposited with the supplier by/or on behalf of the player, excluding the amount entered into the games, bets out of winnings of previous games and not on the total value of each bet placed.”

At the start of the press conference, Sitharaman said, “The Council, in its last meeting, had taken a decision on taxing on all the betting, gaming-related activities, casinos, horse racing, and online games, and therefore in the last meeting when it was discussed after three full years of the GoM having done its job, it was decided, that all of them will be taxed at 28% on face value. So today, the meeting was on the specific agenda on what are the amendments to be made, their language, and to take the view of the Council. In that, the discussion went on the agenda, but the Minister from Delhi wanted the whole thing reviewed, particularly on online gaming. The discussion went on, and then Goa and Sikkim, who have an interest in the casinos, also felt that the decision taken the last time hurt their interest, although they are in favour of higher taxation because today what is prevailing is 18% on GGR now the Council’s decision in the last meeting was 28% on face value…”

“The presentation went into details of where the amendments and what kind of amendments will have to happen, and it was also put to the question that when we can start implementing this. The reason why it had to be asked was that states have to pass their own legislation subsequent to the Centre. Some of the states came out to say they will immediately do it now, some said we’ll bring an ordinance, but it has to be implemented. Of course, it was a concern that the decision was not unanimous. We reminded them (me and the Revenue secretary) that once earlier on, the decision of lottery was not unanimous. So yes, while the Council’s legacy has been on positive, consensus-based decision-making there are times once earlier and now when the decision is not consensus-based.”

On when the decision will be implemented, Sitharaman said, “October 1 is when it is expected, by which time states will also pass amendments to their state laws. Because on the casino, Goa and Sikkim kept appealing, saying we’re small states, we need to be given consideration, the Council agreed today to come back after six months to review the way in which it is getting executed. Six months begin from when it gets implemented. Six months of implementation hopefully will give us some inputs, and we can share our experiences to see how it is going in.”

Revenue Secretary Sanjay Malhotra attempted to clear the air on the taxation of online gaming. He emphasized that taxing online gaming activities does not imply legalization in regions where it is currently banned. “Betting is already liable to GST today, and it does not make it legal…Betting and gambling are illegal and liable to tax. Taxing online gaming will not result in legalizing online games in those states which have banned them.”

You can watch the press conference shared on the YouTube channel of the Press Information Bureau below.

A Crushing Blow For the Online Gaming & Casino Sectors

E-Gaming Federation and Federation of Indian Fantasy Sports (FIFS), representing 50 Indian online gaming companies, reacting to the Council’s decision, said, “The new tax framework, while clarifying and resolving uncertainty, will lead to a very burdensome 350% increase in GST and set the Indian online gaming industry back several years. However, it will allow gaming companies a fighting chance to innovate and rebuild the foundation of gaming in India.”

The gaming industry’s apex self-regulatory body, the All India Gaming Federation (AIGF), was one of the first components of the industry to express deep disappointment with the Council’s decision.

The AIGF, in an official statement, said, “We believe the decision by the GST Council of valuation on deposits will severely impact the online gaming sector and result in a situation where a majority of players, including the MSMEs, will no longer be able to survive in the face of the increased tax liability of 400%. Only established and well-entrenched skill gaming companies may be able to scrape through this change by using their existing capital reserves to counter the effects of substantially increased tax liability. However, even their revenues and valuations will significantly fall.”

“Additionally, companies at their early growth stages, particularly those within the startup and the MSME sector, will be disproportionately impacted. Moreover, the rampant illegal offshore gambling websites will thrive as efforts to block them have been ineffective till now.”

“As the oldest and largest apex industry association for online gaming and the voice of MSME gaming startups, we sincerely hope that, as mentioned in the meeting, there will be a rethink after six months and a stable and progressive regime can be proposed, which will help the industry grow, provide safe platforms to digital nagriks while increasing tax revenues and contributing to the vision of India becoming a global gaming powerhouse.”

MoneyControl quoted Saumya Singh Rathore, co-founder of WinZO, “Taxing GST on deposits rather than the technology platform commission charged by the companies will make the unit economics unviable, wiping out 80 per cent of the industry, with fatality concentrated in MSMEs and startups that house new age business models. This increase of 400 per cent will solely encourage the rise of monopolistic play. Reasonable taxation can protect our over 500 million internet consumers from illegal offshore products.”

Gamerji CEO Soham Thacker stated, “While we are going to obey the law of the land, we feel that focusing on entering new international markets will serve as a good strategy to manage the impact of the GST levy.”

Offshore Operators to Be Taxed

The Revenue Ministry also proposed a solution for offshore gaming operators who are out of the ambit of the GST, envisaging that offshore companies who have no physical presence but are operational in India will have to pay tax, register themselves in the country, and keep a representative in India. The government can block access to any operator who does not comply with the mandate.

At the press conference, Malhotra announced the establishment of a monitoring cell under the Directorate General of GST Intelligence (DGGI) to oversee offshore gaming companies and ensure compliance with tax payments. The cell’s purpose will be to closely monitor and take action against those offshore gaming companies that operate without fulfilling their tax obligations.

The Road Ahead?

The 50th meeting of the GST Council on July 11 witnessed intense protests from the RMG industry. The affected sectors have appealed and lobbied with the government, urging the Council to reconsider and withdraw its decision.

While the Minister of State for Electronics and Information Technology (MeitY), Rajeev Chandrasekhar, had indicated that MeitY may request the Council to reconsider its decision, he later clarified that there was no discord between MeitY and the GST Council regarding the taxation of online gaming.

Revenue Secretary Sanjay Malhotra was upfront in clarifying that the Council was unlikely to change its decision despite the appeals. The All India Gaming Federation (AIGF) had written to Malhotra appealing for a rethink on the decision ahead of the 51st virtual meeting.

In a related development, the government issued a Gazette notification on Monday, July 31, designating the Union Ministry of Information and Broadcasting (I&B) to regulate all aspects of online advertising, online gaming content, and policies of online gaming platforms.

Although the GST Council stated that it would review its decision in six months, the decision appears to have substantial support from representatives of various states. As a result, the Council’s stance is likely to remain unchanged in the foreseeable future.

This is a significant setback to the RMG industry, the fallout of which could result in decreased promotional giveaways and reduced player pools. Industry insiders also predict the closure of many gaming firms. The extent of the damage stemming from this decision remains to be seen.

This is a developing story. Keep following PokerGuru for the latest updates!