GST blow to e-gaming

The Goods and Services Tax Council on Tuesday decided to impose a 28% tax on online gaming, without making any distinction between games of skill and chance. The tax will apply on the full value of the bets placed, a move that will jack up the tax incidence on the thriving sector. Similar tax will apply on actionable claims of horse racing and casinos.

Necessary amendments to the GST laws will be introduced in the monsoon session of Parliament, starting July 20, sources said.

Finance minister Nirmala Sitharaman said after the council’s 50th meeting here that “the decision is purely in the realm of taxation”, but hinted at aligning the tax policy with the online gaming regulations being framed by the ministry of electronics and information technology (MeitY).

Industry players and independent analysts felt the new hefty tax on the turnover of the gaming companies would hit their cash flows hard, and constrain their ability to invest in innovation and business expansion. It is also seen to undermine the foreign direct investment into the sector.

This council’s move, however, brings certainty to the taxation of these activities, which will now be clubbed with “betting, gambling and lotteries.” The industry and tax experts have argued for an 18% tax on platform fee, even as the tax authorities have been sending notices to them for 28% tax on full consideration for several months now.

The decision to tax all kinds of online gaming on the buy-in amount and at the highest rate is despite the Karnataka High Court ruling on May 12, quashing a Rs 21,000-crore show-cause notice on Gameskraft. The tax claim was on the basis of 28% rate on the face value of the bets.

The Council did not resort to voting for the decision, although a Group of Ministers (GoM), which reviewed the matter, could not reach a consensus even in a second report submitted to it on Tuesday.

Sitharaman said: “We are purely looking at what is being taxed, not at games of skill or chance. Because the activity creates value, profit is being made.. people earn windfall which is what betting is all about.”

The council also tweaked the tax rates for a clutch of items, the most significant being a 22% cess on the highest slab rate of 28% on medium utility vehicles (MUVs) and crossover utility vehicles (XUVs), similar to how sports utility vehicles (SUVs) are taxed. Sitharaman said the description of the vehicles, which will now attract the cess will be made in such a manner, that sedans are not covered. Essentially, this clarification will make it difficult for the auto companies to claim lower cess of 20% by citing lower ground clearance for certain vehicles in these categories, but industry players said the impact on them would be minimal.

Additionally, the Council resolved to set up the GST Appellate Tribunal, with regional benches in states, to hear the appeals against the decisions of the GST authorities.

Commenting on the new tax on online gaming, Sudipta Bhattacharjee, partner, Khaitan & Co, said: “This is completely against the vision of the government to promote online gaming in India. The findings of the Karnataka High Court in Gameskraft with respect to the distinction between a game of skill and a game of chance has not been appreciated. It will need to be seen if the prescribed methodology to tax online gaming will pass the test of constitutionality. In any case, this cannot be implemented retrospectively.”

GST blow to e-gaming

The GST Council on Tuesday decided to impose a 28% tax on online gaming; 22% cess on the highest slab rate of 28% on medium utility vehicles (MUVs) and crossover utility vehicles (XUVs)