India’s bombshell decision to impose a steep goods and services tax (GST) on online gambling volume and not gross revenue was merely a “clarification” and the tax will apply to existing assessments, the revenue secretary said, likely compounding heavy damage to the industry.
A day after the GST Council’s decision on Tuesday (July 11) to apply a 28 percent GST to gaming volume for online operations, land-based casinos and horseracing, revenue secretary Sanjay Malhotra told reporters that an amendment to GST legislation some months from now will simply confirm existing practice.
“So far as we are concerned, GST rates on online gaming, casinos, and horseracing were always 28 percent.
“So, the question of [a] retrospective amendment does not arise because this amendment is only in the nature of clarification,” The Hindu daily reported Malhotra as saying.
The unanimous decision of the GST Council — consisting of central and regional government finance officials — to “confirm” the tax wipes out the possibility of a grace period before enforcement of what the industry and analysts consider to be a fatal tax burden.
The council’s aggressive defence of the tax also suggests that overdue tax collection will begin in earnest across the industry, amplifying the risk of company closures before legal appeals can be attempted and exhausted.
Several state high courts have blocked collection of GST on online skill-based games when assessed identically with chance games, with the latter defined as “gambling” but the former protected against such definition by decades of Supreme Court decisions.
The most significant of these decisions, handed down by the Karnataka High Court in May, blocked the Directorate General of GST Intelligence (DGGI) from demanding $2.6bn in unpaid GST from skill gaming company Gameskraft.
Malhotra on Wednesday confirmed the government is appealing the ruling to the Supreme Court and said it places no stock in high court rulings distinguishing skill and chance gaming for tax purposes and will ignore the Karnataka High Court ruling.
“We are filing an SLP [special leave petition] in the Supreme Court. What happens in that case will be determined by the Supreme Court but we are sure that in future at least, it will not be subject to any interpretation. That’s our effort.
“Still, if the courts or someone else interprets it some other way, then we will fight it out,” he said.
Malhotra said amendment of the GST law to include online gaming and other segments not specifically named in the legislation serves to end ambiguity on their legal status.
“The amendment will include online gaming, casinos, and horseracing in the list of actionable claims, which at present has lottery, betting, and gambling, even though they were earlier covered as betting or gambling.
“But if there is any doubt as to whether they constitute betting or gambling, the very fact that we have included them [means] that they get taxed as actionable claims,” he said.
With industry leaders still reeling after Tuesday’s decision, it was not immediately clear if company or trade group lawyers will exploit the “doubt” admitted to by the revenue secretary to oppose pre-amendment tax assessments on volume.
Shares of Delta Corp and other listed gaming companies fell heavily in response to Tuesday’s council vote, with Delta shares down more than 25 percent in the last two days.
On Wednesday, Malhotra told the Economic Times that the GST on volume will not overly harm the industry or repel foreign investment.
“We don’t think that this imposition or clarificatory amendment will impact the online gaming industry the way the industry feels.
“People who wish to play will continue to play, and those who do not wish to play … they are in any case, out.”
Asked if the GST Council's decision serves as a de facto retroactive tax after the council needed to amend legislation amid several adjournments on the subject and months of delays, a senior India-based gaming lawyer told VIXIO GamblingCompliance: “[I] absolutely agree. I’m frankly so disappointed with this; it’s a big setback for everything we have been doing.”