India's Tax Agency Says Land-Based Casinos Owe $1.2bn

July 24, 2023
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India’s goods and services tax (GST) bureaucracy is extending aggressive recovery of GST from the online gaming industry to land-based operations, with officials targeting $1.2bn in unpaid taxes from casinos in Goa and Sikkim states.

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India’s goods and services tax (GST) bureaucracy is extending aggressive recovery of GST from the online gaming industry to land-based operations, with officials targeting $1.2bn in unpaid taxes from casinos in Goa and Sikkim states.

The Directorate General of GST Intelligence (DGGI) is targeting “about a dozen casinos” in the only two states that allow casino operations, CNBC-TV18 reported in its online and broadcast editions on Friday (July 21).

The DGGI alleges that the casinos have avoided GST payments by paying a lower rate of 18 percent instead of the full 28 percent rate that the DGGI argues applies to casino revenue, the reports said.

At least some of the casinos have also made fraudulent tax credit claims, they said. The reports and the DGGI have not named the casinos.

The DGGI’s probes into the casinos reportedly pre-date a meeting of the GST Council on July 11 that resolved to impose a 28 percent GST on gaming volume rather than gross gaming revenue.

The decision has triggered panic and warnings of mass closures of businesses, especially start-ups, in the online skill gaming industry and came despite expert warnings of overwhelming tax burdens if the GST Council opted for a tax on volume.

Land-based casinos are arguably more exposed than online operations to a GST crackdown on rate calculations and volume assessments given that many or most of the casinos’ offerings, such as baccarat, roulette and slot machines, are chance-based games.

Such games do not enjoy the constitutional protections afforded to skill-based games such as poker, rummy and fantasy sports, which means options for legal recourse will be more limited.

However, even these protections and recent state high court orders backing the gaming industry were ignored by the GST Council, which refused to distinguish between skill and chance-based gaming.

The most significant of these high court orders has been appealed by the central government to the Supreme Court, contradicting the spirit of its own nascent regulatory regime for the online skill gaming sector, as well as its messages of support for research and development and billions of dollars in foreign investment.

Worse still for the industry and the casinos, the finance ministry said on July 12 that the 28 percent GST on gaming volume for casinos, online gaming and horseracing has always been in force, and that the July 11 GST Council meeting merely affirmed this.

In taking this position, revenue secretary Sanjay Malhotra said the tax authorities are simply collecting their dues and are not imposing a tax retroactively.

At the same time, finance officials say the move to include these sectors by name in tax law amendments at an unnamed date is for clarification purposes and does not signal a lack of authority to impose the tax on them.

Legal counsels for some gaming companies disagree, however, and are promising lawsuits to challenge these amendments, particularly if long-standing Supreme Court decisions liberating skill-based games from the definition of “gambling” are ignored.

Meanwhile, the third gaming segment named in the GST Council’s decision on July 11 has lamented the council’s decision.

The Turf Authorities of India on Thursday (July 20) warned that if the 28 percent volume tax is not reviewed and changed, imposition will lead to a worst case scenario for horseracing after years of damage from coronavirus pandemic impacts.

“[Unless the tax is reviewed], the closure of the entire racing industry in the country is imminent and unemployment on a massive scale is unavoidable,” the group said.

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