Bottomline | Making sense of the GST claim on Delta Corp

The immediate reaction of many to the seemingly absurd GST demand of nearly Rs 17,000 crore on Delta Corp, the casino, online gaming and cruise ship operator, was disbelief and astonishment. It just seemed absurd that a company of Delta Corp’s size could be asked to cough up this kind of money in taxes. We’ll try and make some sense of these numbers, but first, let’s look at the information shared by Delta Corp in its filing to stock exchanges.

A careful look at the text of the notification reveals two important aspects. The first, the demand is “for the period from July 2017 to March 2022”. And the second is that the “amount claimed in the DG Notice is inter alia based on the gross bet value of all games played at the casinos during the relevant period. Demand for GST on gross bet value, rather than gross gaming revenue, has been an industry issue and various representations have already been made to the government at an industry level about this issue”.

In this context, it must be noted that the GST Council approved the levy of 28 percent GST on the gross bet value with effect from October only this year. This is to be reviewed after six months. Hence, it would seem logical to presume that if a rule is effective from a certain date onward, it cannot necessarily be effective from a date prior. Hence a claim of GST on gross bet value for a prior period is most likely to be challenged.

However, what is not clear is how the GST was computed and paid by Delta Corp in the above period. Was it paid on gross gaming revenue (GGR), which is computed by deducting winnings from the bet value? Or only on the platform fee charged? And is the computation of such GGR at variance with how the GST authorities compute the number?

Such issues could still lead to some claims for dues being made, even if the gross bet value levy is rejected.

Can a company with an income of Rs 1,000 crore per year and a balance sheet size of Rs 2,500 crore be possibly liable for GST dues of Rs 16,823 crore? While this does seem like a number that’s been pulled out of someone’s hat, there is a logical explanation as to why the two may not be inconsistent. For this, you need to understand how GST is levied and what relation this has to the gaming operator’s income.

The levy of GST as proposed is to be on the amount placed by an individual with a gaming platform for bets. So, if you decide to wager Rs 10,000, at the new rate of 28 percent from October 1, you will need to pay Rs 2,800 as GST. This GST will be collected by the operator and deposited with the authorities. This has no relation to the operator’s income and is not supposed to come out of the operator’s earnings, but directly collected from the individuals who are betting.

In most cases, the operators of casinos and online gaming platforms will charge a platform fee that will be only a small percentage of the bet amount, and that would constitute their income. Hence, the GST demand amount claimed may seem extraordinarily large in relation to an operator’s income or resources, but that is because it has no relation to the operator’s size. The GST amount needs to be related to the value of betting that has taken place on the platform, and that is likely to be a much higher number.

The trouble is, if an operator has not already charged GST on the bet amount, how does the operator now go and recover that sum? No one wagering on the platform is now going to cough up GST on a past transaction.

That is where this entire issue gets messy. The most logical outcome is that the taxman and operators will come to an arrangement to make good any old wrongs or waive past sins and move on to the new regime, that more clearly defines how GST is to be levied.

We haven’t heard the last of the GST issue, with a review lined up in six months after the new regime kicks in. And till we do, investors need to be wary of investing in the sector, as what the new GST levy will do to volumes is also anybody’s guess.