The Goods and Services Tax (GST) Council will meet via video conferencing on August 2 to “finalise the details” of the new 28% GST on the turnover of online gaming and casinos, official sources said. This indicated a plan to provide some relief to the industry from the hefty tax, even though the sources insisted that, “there is no backtracking.” One option under consideration is to offer tax rebates for winning amounts redeployed in the gaming platform.
The Council’s decision at its July 11 meeting here to tax both the activities and horse racing at the highest GST rate and at the full value of the bets placed or chips purchased, had provoked a backlash, especially from the burgeoning online gaming industry. Though many state governments had earlier differed on what base the tax will apply –just the platform fee or the full consideration –, the Council was said to be unanimous in the final decision, as it chose not to make any distinction between games of skill and chance.
The unusual move of the Council to meet again on a decision taken just three weeks ago, is amid the government’s plan to move necessary amendments to the GST laws in the ongoing monsoon session of Parliament.
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 foreign direct investment into the sector.
After the Council’s decision, investors in the gaming industry have petitioned Prime Minister Narendra Modi saying that the move has caused shock and dismay, will “substantially and meaningfully erode investor confidence” in this and other sunrise sectors in the Indian tech ecosystem.
Sources said gaming federations met the Revenue Department complaining that tax would become very high if the levy is at each and every stage of a game. “Whether tax will be levied at entry level or tax each and every bet, the Council will take a decision,” another official said.
The issue of excess taxation is highlighted by the industry, as there is a lack of clarity on whether the contestant will have to pay the full tax at every stage of gaming. For instance, if a participant pays Rs 1,000 as a contest entry amount, 28% GST will be applicable only on that amount or also any winnings she might redeploy in the game. “If the above participant wins Rs 500 in the contest, and redeploys that money for another contest, will there be again a 28% GST on that? There is no clarity on this,” said an industry source.
“On account of taxation of redeployed player winnings, the same money will get taxed repeatedly resulting in a scenario where over 50-70% of every rupee will go towards GST, thereby making the online real money skill gaming business unviable,” the group of 30 investors including Kalaari Capital, Peak XV, Tiger Global, said in their letter to Modi.
“If the full value of bets is understood in a manner where GST is levied on every contest paid every time with fully taxed winnings, the GST burden will increase by 1100%,” the investors said.
This structure of repeated taxation will also have an impact on players in terms of their winning amount which will be reduced owing to taxation. Further, owing to the reduced winning amount, gamers would be discouraged from redeploying the funds, an executive of a gaming company said.
Stating that there is no difference of opinion between the Finance Ministry and the Ministry of Electronics and Information Technology, Minister of State for Electronics, IT, Skill Development and Entrepreneurship, Rajeev Chandrasekhar said on July 24 that the regulatory framework for permissible online gaming is still evolving. “As regulatory framework for permissible online gaming stabilizes we will request GST Council to study and consider a new Framework. Both FinMin n MeiTy are working together in Whole of Govt approach to challenges n opportunities in Digital space,” he said.
The GST receipts from the burgeoning online gaming industry fetched barely 2% of its estimated turnover of Rs 85,000 crore in FY23, revenue secretary Sanjay Malhotra told FE in an interview recently.
The finance ministry is looking at various options to enforce a 28% tax on foreign gaming platforms as well, he said, adding that non-compliant firms would be barred from providing such services to Indian residents.