Sweeping GST Changes of 28% Tax on Initial Deposits Across Online Gaming Platforms to Come Into Effect on October 1; Several Prominent Sites Get Notices

In less than 24 hours, significant changes are set to impact India’s real-money online gaming industry. On Friday, September 29, the central government officially announced that amendments to the Central Goods and Services Tax (CGST) and Integrated Goods and Services Tax (IGST) across online gaming, casinos and horse racing sectors will take effect starting October 1. The Lok Sabha approved these modifications on August 11.

In the backdrop, well-placed insiders have shared that leading online gaming companies have been alerted about the GST changes coming into effect imminently. For gaming enthusiasts, the clock is ticking to make deposits without the added GST before the revised norms kick in.

PokerBaazi, India`s leading online poker platform, was the first to outline its approach to the new GST regime. In a communication dispatched to its players an hour ago, the platform emphasized its dedication to providing an uninterrupted gaming experience. Consequently, PokerBaazi has committed to absorbing the GST impact on behalf of its users by crediting a part of the GST amount as Real Cash Bonus.

To illustrate, for a deposit of ₹100, the player’s PokerBaazi wallet will be credited with ₹100. This sum comprises ₹78 from the deposit and an additional ₹22 as an Instant Real Cash Bonus – considering your initial deposit as ₹78 and re-imbursing you the 28% GST on that, i.e., ₹22, in bonus money. PokerBaazi has confirmed that it will provide players with a receipt of the GST paid on all their deposits.

Given PokerBaazi’s dominant position in the industry, other online poker platforms are expected to adopt a similar approach. It remains to be seen if some platforms chose to credit the entire deposit amount as playable cash in player accounts and instead offset the tax through increased rake across tournaments and cash tables.

The decision to levy 28% GST on the full face value of initial deposits for online gaming, casinos, and horse racing was taken at the 51st GST Council meeting on August 2. The enforcement date was confirmed as October 1. Since this decision, various states have been working towards adjusting their state GST laws to reflect these changes; however, many have yet to make the necessary amendments. These changes have increased the tax burden on the industry by 300-400%

As of September 26, informed sources have verified that only 13 states/union territories have made the necessary legislative changes. Meanwhile, 18 states are either still in the process of adaptation or have yet to provide public updates on their progress. Notably, the states of Goa, Madhya Pradesh, Gujarat, and Karnataka have implemented the GST regulations, while others are still pending the passage of the GST amendment bill or an equivalent ordinance. Despite this, a high-ranking government official has confirmed the Union government’s readiness to roll out the new GST framework on the pre-established date of October 1.

“We are fully prepared to bring it into effect from October 1. As per the decision in the last meeting of the GST Council, related notifications are under process,” CBIC chairman Sanjay Kumar Agarwal said as per The Indian Express. “It is necessary for all states to pass the law or bring out an ordinance. Every state needs to give approval because all states’ laws will need to bring in the required provisions, those who are left will have to complete the exercise,” he added.

On Friday, the central government designated the Principal Commissioner of Central Tax in Bengaluru West as the responsible authority for registering online gaming entities based outside of India that cater to Indian users. This notification will take effect from October 1. Following recommendations from the GST Council, the government has made the decision to tax international gaming companies, implementing necessary amendments accordingly.

With modifications to the CGST Act 2017, a fresh Section 14A was introduced, making it obligatory for offshore gaming companies to pay taxes. Government officials further emphasized that while these offshore entities will be taxed, it doesn’t necessarily indicate the legality of the games they offer. This heightened focus on international gaming firms stems from previous instances where such entities evaded tax obligations and allegedly engaged in money laundering activities.

The revised tax rate is just one concern for online real-money gaming companies. Many of them are currently grappling with tax demand notices sent by the Directorate General of GST Intelligence (DGGI), which mandate them to pay vast sums in back taxes, running into hundreds of crores.

This wave of notices was triggered by a recent turn in the Gameskraft show cause notice case. While the Karnataka High Court dismissed this case in May, the Supreme Court recently imposed a stay on that decision, acting on a plea filed by the DGGI.

Consequently, numerous gaming companies, such as Dream11, slapped with a ₹1,221 Crores notice, and Play Games 24×7, facing a staggering ₹20,000 Crores demand, find themselves in the crosshairs. It’s anticipated that many other firms will soon be added to this growing list.

Talking about the recent tax notices, Agarwal said, “Showcause notices are going as per legal provision…the government has taken a uniform stand in terms of interpretation of the law, and accordingly notices have been issued.”

“It is difficult to say as there are many companies, and in that case, data is being collected. Wherever data has been received, the department has issued showcause notice,” he added.

The cumulative demand from GST authorities has now surpassed ₹50,000 Crores. Industry experts predict this figure could well breach the ₹1 Lakh Crore threshold. Should the Supreme Court’s verdict lean towards the DGGI, many online gaming companies might find themselves on the brink of insolvency, potentially resulting in a significant downturn in the gaming sector while landing the Directors of the company for prosecution.

In the midst of these developments, the GST Council has scheduled its 52nd meeting for October 7, where discussions regarding the implementation of the new GST amendments are anticipated, along with clarity of various other issues.

MeitY Puts SRBs For Online Gaming Regulation on the Backburner

While the new GST regime for the RMG industry is on the horizon, the Ministry of Information and Technology (MeitY) is reevaluating its proposal to permit the online gaming sector to establish self-regulatory bodies (SRBs) to monitor the industry. This reconsideration stems from apprehensions that dominant online gaming entities might manipulate these SRBs by securing pivotal positions, potentially undermining their impartiality.

For the government, SRBs play an integral role in the meticulous regulation of the online gaming landscape. These entities are designed to ensure the seamless enactment of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021, which MeitY rolled out on April 6.

Currently, a dedicated committee is reviewing proposals from various organizations vying to form SRBs. Among the noteworthy contenders are the All India Gaming Federation (AIGF), the Esports Players Welfare Association (EPWA), and a collaborative submission from the E-Gaming Federation (EGF) and the Federation of Indian Fantasy Sports (FIFS).

52nd GST Council Meeting Set For October 7

The GST Council has announced that its 52nd meeting will take place on October 7 at Vigyan Bhawan, New Delhi. This information was conveyed via a post on X (formerly Twitter).

The 52nd meeting of the GST Council is scheduled for 7th October, 2023 at Vigyan Bhawan, New Delhi.

— GST Council (@GST_Council) September 26, 2023

During this meeting, the Council intends to assess the advancements concerning amendments to the SGST law across various states and tackle other pressing issues regarding these new GST law changes for the gaming industry.

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