India’s finance ministry has signalled a softening on its damaging goods and service tax (GST) on online gaming volume, with the GST Council to clarify if player account deposits or individual bets are to be taxed.
Revenue secretary Sanjay Malhotra said on Tuesday (July 25) that the GST Council will not reconsider applying a GST on gross gaming revenue (GGR), as the gaming industry has demanded, but will discuss how the tax on the “full face value” of player funds should apply.
Malhotra said the council will decide whether to impose the GST on the “entry-level” transfer of cash to a gaming platform or the individual bets made on that platform.
He acknowledged in an interview with NDTV that a GST on individual bets could blow out operator tax burdens given that “a kind of double taxation” would occur.
“There are pros and cons both ways as to whether we tax it at the entry level itself or we tax each and every bet,” Malhotra said.
“The taxation, as has been claimed by the gaming industries, becomes very high in case it is taxed at each and every bet.
“Well, that’s true. It’s a fact, it’s true. And that will certainly be taken into account when the final decision on this is taken."
However, Malhotra ruled out a move back to a tax on GGR or a softening of the rate from 28 percent, confirming that the tax will remain “on the face value” of betting.
“Now, whether the face value … will be at entry-level or whether it will be at each bet, that is a question [on] which a final call will have to be taken by the Council and it will be taken shortly,” he said.
Applying the GST to “entry-level” funds rather than the series of bets that the funds furnish would be a concession of sorts to the gaming industry.
But damage from a non-GGR tax is already being felt, with major foreign and domestic investors writing to Prime Minister Narendra Modi to warn him that billions of dollars in gaming investment are in the balance, the Indian Express reported on Wednesday.
That pressure followed an open letter from companies and peak groups across the industry decrying the GST decision.
The softening of the GST Council, which is made up of central and state government financial officials, comes as disagreement grows in central and state government ranks over the council’s hardline decision.
The Ministry of Electronics and Information Technology (MeitY), which is already the target of industry criticism for a lack of clarity on restrictions it will place on real-money gaming, said on July 17 that it would ask for a review of the GST Council’s decision.
Rajeev Chandrasekhar, the minister of state with MietY responsibilities, said the GST Council needs to take the ministry’s new regulatory framework into account in its decisions.
Several state government officials have also dissented against their own state delegates in the GST Council on the reasoning for the GST on volume and the potentially disastrous outcomes for smaller and start-up companies in the sector.
Arvind P. Datar, a senior advocate in the Madras High Court who represents gaming clients, said in the Indian Express on Tuesday that the GST Council has fuelled the “serious flaw in our taxation system [of] excessive focus on revenue maximisation”.
“It is equally important for policymakers to examine the collateral consequences of oppressive rates of taxation,” he wrote.
“Lower rates will result in lower tax collection on an individual product or service, but the increased growth in that industry will more than make up for the loss in taxes.
“The resultant increase in employment and its overall impact on the economy is perhaps the most critical factor that needs to be considered at this juncture,” he said.