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India’s GST Council has partially walked back its hardline decision on online gaming taxes, clarifying that a 28 percent goods and services tax shall apply to initial deposits and not to every bet.
The council “recommended that valuation of supply of online gaming and actionable claims in casinos may be done based on the amount paid or payable to or deposited with the supplier, by or on behalf of the player … and not on the total value of each bet placed,” according to a finance ministry statement on Wednesday (August 2).
The council’s decision for online gaming, casinos and horseracing is likely to ease pressure on shocked online gaming companies staring at closure amid the new tax’s erasure of margins.
The council includes finance officials from the central government and all state governments, but the consensus that the finance ministry said existed in the last meeting in July fractured on Wednesday.
Finance minister Nirmala Sitharaman told a press conference after the meeting that the state governments of Delhi, Goa and Sikkim dissented from the decision, with Delhi requesting a thorough review of the online gaming sector to assess the GST’s damage before imposing the higher tax.
Goa and Sikkim, the only two states with land-based casinos, maintained that the tax should be at a higher level than the de facto 18 percent tax now in force, but should be calculated on gross gaming revenue (GGR) rather than deposits.
Sitharaman also said the state of Tamil Nadu expressed concern that implementation of the GST tax in central and state legislatures might “nullify, undermine or dilute” that state’s overall ban on online gaming.
She added that amendments to GST legislation, which are “expected” to be in force from October 1 this year, would include provisions for states that ban online gaming in its entirety.
Delegates from Chhattisgarh, West Bengal, Karnataka, Bihar and other states said the matter had been discussed for three years and was well past time for implementation.
However, the GST Council acknowledged the dissenting views, particularly the pleas from Goa and Sikkim, two of India’s smallest states.
“The council agreed today to come back after six months [following implementation] to review the way in which this is getting implemented,” Sitharaman said.
Wednesday’s meeting also clarified that foreign-based online gaming operators who have Indian customers – in general an illegal activity – shall pay the same 28 percent GST and shall be blocked if they do not do so.
The All India Gaming Federation (AIGF), an online skill gaming peak body, expressed some relief on Wednesday, but warned there will be material damage to the industry.
“Only established and well-entrenched skill gaming companies may be able to scrape through this change by using their existing capital reserves to counter the effects of substantially increased tax liability,” the AIGF said in a statement.
“However, even their revenues and valuations will significantly fall.”
The latest GST Council gathering was convened in response to a severe response from the online gaming industry to its July meeting, with casino and horseracing interests also objecting to the hardline approach.
After the July meeting, central government revenue secretary Sanjay Malhotra told a press conference that the council had merely clarified an existing 28 percent GST regime on “face value” of bets rather than GGR rather than changing the rules.
This approach confirmed that the central government’s finance officials are maintaining a tough line on betting, regardless of the skill component of the game in question.
GST on online gaming will now be tested in the Supreme Court, with the central government’s Directorate General of GST Intelligence (DGGI) confirming this week that it petitioned the court to hear its appeal against a Karnataka High Court decision blocking the higher tax on skill games, such as rummy and poker.
