The Goods and Services Tax (GST) Council's Group of Ministers (GoM) are likely to impose a 28 percent tax on gross gaming revenue from casinos and online gaming when they meet next.
The GoM, which is headed by the Meghalaya Chief Minister, met offline in Bengaluru and Goa noting the concerns from the industry.
The GoM met in Bengaluru on Saturday and met the online gaming and race course industries to understand the mechanism of how betting is done at these platforms. On Sunday, the GoM went to Goa to examine how casinos operate.
People in the know have indicated to CNBC-TV18 that after noting all the industry stakeholders’ concerns, views and suggestions, there is an in-principle approval to levy 28 percent GST on gross gaming revenue.
The GoM is likely to submit its final report soon. However, it is important to note that the GoM members from Tamil Nadu, Maharashtra, Gujarat, Telangana and West Bengal did not attend this meeting held over the weekend in Bengaluru and Goa.
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It has also been understood that there could be another meeting or maybe these members will be allowed to submit their responses in writing to the GoM post which only a final report will be given to the GST council and the last date is August 10, 2022.
Meanwhile, the industry continues to voice its concerns and wants the GST Council to give clarity to them in detail, as they wait for a formal decision.
According to Abhishek A Rastogi, Partner at Khaitan and Co, "The moot point remains is to appropriately value the service rendered by casinos and online gaming. The tax, as per GST provisions, could be levied only on the consideration which is the service fee or the revenue of the casinos and online gaming."
"Accordingly, when a person enters the casino and buys chips for Rs 2,000, there will be GST on that Rs 2,000 when the entire Rs 2,000 is lost. In other words, if the player returns Rs 500 then the tax could be only on Rs 1,500, as that represents the value of the service. The complexity will enhance when the player wins and returns Rs 5,000 instead of the initial trips taken for Rs 2,000. The concept of actionable claims will come into play for determining taxability. It may not be feasible to have same set of rules to value services for online gaming and casinos and hence the two sectors may have to be treated differently with caution," Rastogi added.
Elaborating on the complexities attached to the subject, Abhishek Jain, partner, Indirect Tax, KPMG in India, said, "GOM in light of the recent GST Council meeting is reconsidering the regulatory environment surrounding taxability of online gaming and casinos.
"As regards casinos, the GOM should consider providing explicit clarity around areas such as -- Will GST be levied on the full face value of chips purchased, or only to the extent such chips are used? Whether GST is to be levied only on the net income earned by the casinos after adjusting the winning of the public, or on the entire gross income? Is a higher GST rate to be levied only on the chips used for gambling activity, or also on chips used for food and entertainment purposes as well? And, What would be the compliance and reporting mechanism thereof? Such clarity needs to be given by the council to avoid any litigation and further enforcement and compliance difficulties," he said.
For the online gaming and race courses, Jain added, "Talking about online gaming, while horse racing and gambling already attracts 28%. A shift of online gaming from 18% to 28% bracket will drive up the cost to end consumers significantly. The key question to be answered here by the GOM is whether the GST is to be levied on the gross earnings by these online gaming apps, or on the net earnings after allowing for the concession of winnings distributed to the participants."
Similarly, Pratik Jain, Partner, PriceWaterhouse & Co LLP, said, "Online gaming is an upcoming industry, and levying 28 percent GST on this sector may impact the growth and future investment in this niche field. The GST Council may want to distinguish between the game of chance and a game of skill. While the game of chance may warrant a higher levy, GST on the game of skills should be ideally retained at 18 percent."
"Online gaming companies treat the platform fees as Gross Gaming Revenue (GGR) and the stake money is typically called "Contest Entry Amount". If the proposal is to levy GST only on Gross Gaming Revenue ie platform fees, then it is a welcome clarification.” But, all the issues must be clarified in detail, in advance by the GST Council for the industry to easily adopt the changes," Jain added.
Watch the accompanying video of CNBC-TV18’s Timsy Jaipuria for more details.