28% GST on online games, casinos to be levied on entry amount, not winnings: Finance Minister

The GST Council has decided to continue with the 28 percent GST on online games, casinos and horse racing but this would be on the initial amount paid on the game and not on the total value of each bet placed. GST would not be applicable on the winnings which could be used to place further bets.

The Finance Minister expects to implement the revised GST tax rates from October 1. The GST Council has decided to review the tax regime six months after the implementation.

The Revenue Secretary Sanjay Malhotra has said that the bets placed using virtual digital assets and virtual digital currencies will also fall under the ambit of GST.

Abhishek A Rastogi, Founder Partner, Rastogi Chambers has stated that the online gaming industry may not be pleased by the decisions of the GST Council.

Rastogi said, "While tax certainty and pragmatic decisions are always welcomed by industry, the online gaming industry may not be very happy with the outcomes of the 51st GST Council meeting. The details of the proposed amendments will make the way forward clear for the industry. It appears that most of the issues would be addressed only through the constitutional route as there may not be much left now in terms of the support from the council."

"There are several aspects which will be important for the survival of the Online Gaming sector and whether the decisions of the GST Council would be subject to judicial review can be debated only after perusal of the proposed amendments. Any retrospective applicability to recover additional and differential demands may be a little too harsh," Rastogi added.

In reaction to the GST Council meeting, L. Badri Narayanan, executive partner at Lakshmikumaran & Sridharan Attorneys said, "The Council’s decision to levy GST on deposit made at entry level has brought a sigh of relief for the sector. The council has recommended parity in treatment for casinos and online games of skill. With the said amendment, the valuation mechanism for Casino and Online gaming are kept at par i.e., GST will be charged only on the value of coins purchased and money deposited in wallet respectively, rather than levying GST on each game played. This is a welcome clarification for the industry stakeholders. The decision is in alignment with the recent developments in income tax provisions linked to deposit of amount to wallet. Bank to bank transfer of money will create ease of transparency, traceability and monitoring for stakeholders. We need to await fine print of amendments in relation to definition, place of supply , offshore gaming etc."

Narayanan added, " The Council’s decision to review the tax policies after a period of 6 months will instill a sense of assurance on the effectiveness of measures put in relation to offshore gaming players and impact on the user base of the sector. The tax measures proposed for offshore gaming are similar to OIDAR mechanism. We need to see the tandem operation of IT intermediary rules and GST tax provisions for offshore gaming. The implementation of the amendment (prospective or retrospective) for past period will be based on the decision taken by Apex Court in Special Leave Petition Court challenging the decision of the Hon’ble Karnataka High Court in the Games kraft matter. This will result in a precarious situation of current investigations being continued till finality is obtained in SC."

"Recognition of use of Virtual Digital Assets (VDA) to cash to play online real money games is positive development. Acknowledging the use of VDA as a legitimate mode of payment is in line with global VAT developments. This will have an impact on the sector, however it's a balanced approach." Narayanan further added.

E Gaming Federation (EGF) and Federation of Indian Fantasy Sports (FIFS) have stated that the 350 percent increase in GST would drag back the gaming industry.

"FIFS and EGF, which represent 50 Indian online gaming companies, appreciate the Government addressing the industry’s concerns on the issue of repeat taxation. The new tax framework, while clarifying and resolving uncertainty, will lead to a very burdensome 350 percent 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." FIFS and EGF said in a joint statement.

Sudipta Bhattacharjee, Partner, Khaitan & Co said, "The GST Council clarified that vis a vis online real money games (‘fantasy’ games as well as other real money games) the GST at 28% will be applicable on the actual cash/equivalent deposits made by players on an online gaming platform to commence gameplay and not on the winning amounts being redeployed by players for further gameplays. While this will certainly afford some amount of relief to the online real money gaming sector, many smaller startups in this segment may still get very badly hit once this higher GST comes into force — some of them possibly even before the expiry of the review period of 6 months as mentioned in the press briefing."

"The problem remains that GST, despite being a tax on supply of goods/service, is being levied on a value that is much higher than the actual revenue earned by the online gaming platforms for their supply of facilitation services to players. Though a reconsideration was sought by the State of Delhi, it was unfortunately overruled," Bhattacharjee added.

"Investors in this sector may continue to be concerned given the ‘blow hot, blow cold’ approach towards online gaming as a sector where on the one hand, the sector is lauded and encouraged through ‘light touch’ regulations by the MeITY and on the other hand punitive taxation is reaffirmed to be imposed under GST (despite several pleas from the sector) by levying the same level of GST as ‘betting and gambling’ on online games of skill, ignoring decades of settled legal position that games of skill cannot be equated with gambling," Bhattacharjee further added.

Ankur Gupta, Practice Leader — Indirect Tax at SW India pointed out that the review of the rates after six months of implementation is a silver lining for the gaming industry.

Ankur said, "The clarifications provided by the Finance Minister with respect to valuation and taxable amount are aligned to make taxation of these activities simple and not to leave any scope for dual interpretation. One silver lining for the industry is that the rates can be reviewed after six months of implementation."

"By including VDA, they have plucked the overseas gaming platforms who have no base in India and operate only on cryptos or alike if they have Indian customer base. It will be interesting to see how government will keep a track of compliance by overseas players and how much effective blocking work as operating through changed IP address is a common phenomenon in the industry. One interesting amendment is inclusion of platform owner to be considered as supplier. This will be applicable where gaming companies are using third party platforms for their games." Ankur added.