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India’s GST Council on Saturday (October 7) affirmed an industry-threatening goods and services tax (GST) regime for all real-money gaming, triggering an attack on the “unstable, erratic tax environment” by the capital city’s finance minister, who demanded the retraction of tax notices sent to online operators.
The GST Council - a policy gathering of central and state government finance officials - made no changes during the meeting to its revised position on rules for real-money gaming, including a 28 percent GST on initial deposits for online gaming and the same rate on volume for all other gaming segments.
This refusal of the bulk of India’s finance officials to change their position on online gaming taxation triggered extraordinary comments from the treasurer of Delhi, a Union Territory that includes the nation’s capital New Delhi.
Delhi finance minister Atishi Marlena blasted the government for taxing gaming at the maximum rate of 28 percent and for issuing tax delinquency notices to online gaming companies totalling 1.5trn rupees ($18bn) to date, or some 6.5 times the value of the overall industry.
Atishi said the Directorate General of GST Intelligence (DGGI) notices should be retracted before they kill off the jobs of some 50,000 young people and repel foreign investment.
“An unstable, erratic tax environment will deter foreign investors in the online gaming industry and impact the overall startup ecosystem in the country,” she told an online press conference in Hindi translated by the Times of India.
“Subjecting an industry with a current valuation of 23,000 crore rupees [230bn rupees, $2.8bn] to taxes equal to six times its total value would lead to the industry’s downfall.
“No company would be able to pay taxes equal to its total worth,” she said, adding that illegal operations will exploit the collapse of the industry.
Atishi’s comments were the strongest dissent yet from a regional finance minister in defence of gaming companies. They follow DGGI tax notices claiming billions of dollars from individual companies, such as online skill gaming platform Gameskraft Technologies and fantasy sports champ Dream11.
Central government finance minister Nirmala Sitharaman confirmed in a press conference on Saturday that Atishi raised the objections during the GST Council meeting, but that the council will not back down.
The GST Council and the central government have characterised the GST rates for online gaming, casinos, horseracing and lotteries as a confirmation of the status quo rather than a clarification.
Consequently, the related amendment of the tax code and its enforcement from October 1 do not constitute retroactive taxation in the central government’s view.
However, Goa industries minister Mauvin Godinho, whose state hosts a clutch of riverboat casinos and hotel clubs featuring electronic gaming, agreed with Atishi that the government is applying the tax “with retrospective effect”.
“A company with a net worth of 4,000 crore rupees cannot pay 16,000 crore rupees as tax,” he told a press conference after the GST Council meeting.
“Nowhere does it happen that [if] any new tax is imposed or the rate of taxation is increased, it is done with retrospective effect. Most of the states said this is an anomaly that has to be corrected,” he said.
Godinho suggested that there may be time to revert to a more stable tax regime if the GST Council and the DGGI recognise the legal dilemmas that will follow, or else are ordered to do so by the Supreme Court of India, which is hearing a GST dispute between the DGGI and Gameskraft.
“Once they realise it is bad in law, they will automatically withdraw the notices … after it has been brought to the notice of the Council. This issue was raised and discussed … decisions which can lead to closure of the industry will never be taken,” the Indian Express quoted Godinho as saying.
Gaming listco Delta Corp, which has land-based casino operations in Goa, was slapped with a $2bn tax notice by the DGGI in September.
