So far there have been many conversations about the functionality of the Goods and Services Tax (GST) Council. In the last 53rd GST Council meeting, interest and penalties were waived for demand notices issued under Section 73 of the CGST Act (i.e. the cases not involving fraud, suppression or wilful misstatement, etc.) for the fiscal years 2017-18, 2018-19 and 2019-20, if the full tax demanded is paid upto 31.03.2025, as per the latest circular issued by the Finance Ministry. This means that many sectors including shipping, insurance, firms with overseas parents, and food-delivery platforms have received relief from the government. “While sectors such as insurance, shipping have benefited from this step, the council however hasn’t helped some of the industries which are not grappling to stay afloat. Currently, the benefit of this move is restricted to some companies. Benefits or regularisation should be reserved for small taxpayers who genuinely need government support, such as those in agriculture, cold chain logistics, tourism, animal husbandry, fishing, and small manufacturing. It is the innate duty of the GST Council to justify extending such ‘regularising’ benefits based on need, ” Rajat Mohan, executive director – indirect tax division, MOORE Singhi, told BrandWagon Online.
Sectors that benefitted
The insurance market in India is expected to reach $222 billion by 2026, as per India Brand Equity Foundation. The insurance sector has attracted substantial foreign direct investment amounting to nearly $6.5 billion (Rs 54,000 crore), driven by the government’s progressive relaxation of overseas capital flow regulations. The insurance industry of India has 57 insurance companies – 24 are in the life insurance business, while 34 are non-life insurers. Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector company, stated the report. One of the old sectors in India, the insurance industry over a period of time has complied with all taxation norms, industry experts opine that this is also the reason for the government to take such a step. “There is no one that fits all is the formula followed by the insurance sector. For example, in the case of motor insurance, it is largely about the no claim bonus and this is why consumers tend to stick with service providers. Not to mention in the case of four-wheelers and two-wheelers, value always depreciates. While in the case of term insurance (life insurance) only a few avail with a thought process that this will be never claimed,” Anisha Motwani, founder, STORM the NORM Ventures, said.
Moreover, as for ULIP and other products which are purely based on return, these are agents punched products as consumer knowledge about these are very limited. Health insurance is the place, which is heavily inflated, as post the pandemic everyone has realised its importance, and add to that new kinds of diseases. Industry experts opine that in the case of such products cashless claims bundled with OPD service makes a huge difference. Among the new age business, the council has extended the same provision to food-delivery apps such Swiggy and Zomato. As per industry sources and estimates, the total amount expected to be waived in the case of food-delivery apps is Rs 751 crore. “Services are provided by individual delivery partners and not by the food-tech company. In this case, the platform is acting like an intermediary. This claim is the reason for food-tech companies receiving the waiver,” said a senior tax lawyer, on the condition of anonymity.
The status now
The online gaming industry from October 1 2023, following a recommendation in the 51st GST Council meeting, is paying a GST rate of 28% on the total money deposited with the platform. As per the government data, the online gaming industry has already exceeded Rs 3,500 crore in terms of GST collection, in the October-December quarter. Moreover, in a statement to Reuters (a news agency), in February this year, the revenue secretary had stated that the government expects to collect up to Rs 14,000 crore ($1.7 billion) in GST by next year from the online gaming industry. “Currently, online gaming companies are paying taxes from their own pocket, so there is no impact on users. The day they start shifting this burden to players, the industry will witness a huge drop in player engagements. Users have the option to play offshore games where no tax amount is charged, they usually don’t care about legality of the platform. Users are still fine with 30 % tax deduction at source (TDS) on net winnings, but not with the 28% GST on deposits because it reduces the amount in the wallet which is used to play tournaments or contests,” a senior lawyer said, on the condition of anonymity.
The total revenue of the online gaming industry stood at Rs 18,100 crore in 2022, which grew year on year to Rs 22,000 crore in 2023, as per the recent EY report. It is notable that in 2023, the revenue of the money gaming sector accounted for Rs 18,200 crore while that of the other sub-sectors accounted for Rs 3800 crore. The industry is further expected to grow at a compound annual growth rate (CAGR) of 21% to reach Rs 38,800 crore by 2026.
As a part of creating new revenue streams, online gaming companies are now setting foot into international markets, besides investing in game studios. Citing the example of how the Indian government handled the ecommerce sector, experts opine that once the online gaming industry is able to prove itself, maybe the government will take a relook at it. “The Indian government made the same mistake with e-commerce too. It took so long for them to understand the e-commerce sector and now with the desired level of clarity in place, we are one of the leading e-commerce industries in the world. We just need to be bold and fast and make sure the level playing field for all gaming ecosystem players is achieved with clarity of regulation,” Sreedhar Prasad, start-up advisor and former partner at KPMG, said.