India's Lawmakers Soften Gaming Industry Tax

August 14, 2023
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India’s parliament has rammed through legislation imposing a flat 28 percent goods and services tax (GST) on online gaming deposits, land-based casinos, horseracing and lotteries, as well as on foreign-based operations.

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India’s parliament has rammed through legislation imposing a flat 28 percent goods and services tax (GST) on online gaming deposits, land-based casinos, horseracing and lotteries, as well as on foreign-based operations.

The Lok Sabha (lower house) on Friday (August 11) passed the Central Goods and Services Tax (Amendment) Bill 2023 and the Integrated Goods and Services Tax (Amendment) Bill 2023 on a voice vote and with no debate.

Passed on the final day of the parliament’s monsoon session, the first bill applies a 28 percent GST to skill and chance gaming alike, with the levy covering initial deposits by online gaming customers.

The second bill requires India-facing online gaming companies to register with the tax authorities and establish a local representative to this end.

The bills were rushed to parliament after a follow-up GST Council meeting on August 2 determined that the GST should apply to initial customer deposits rather than the sum of individual bets, sparing the industry a worst-case taxation scenario.

The Rajya Sabha (upper house) also approved the bills without amendment on Friday, amid a challenging period for the online gaming industry characterised by warnings of mass company closures and lost investment.

The Central Goods and Services Tax (Amendment) Bill 2023 also includes lotteries in the list of gaming activities on which a “specified actionable claim” can be made.

Lotteries have attracted different GST rates depending on whether they are state-run within their own jurisdiction (12 percent) or state-approved for other state jurisdictions (28 percent).

But the amendment passed on Friday does not refer to this distinction, and does not distinguish between lottery taxation and taxation of other gaming segments, potentially harmonising lottery taxation nationwide.

Finance minister Nirmala Sitharaman, who presented the bill in the lower house, said the new tax regime will be in force by October 1.

There remains doubt, however, about whether the changes are retroactive, given the Directorate General of GST Intelligence’s (DGGI) ongoing legal action against online operators and land-based casinos to recover unpaid GST at the 28 percent rate, as well as the revenue secretary’s statement on July 12 that the GST Council decision merely clarified an existing regime.

The first bill also uses the term “provide clarity” in its statement of objects and reasons for the amendments.

The tight October 1 target will likely now trigger the drafting of ordinances by most or all of India’s 28 state governments to amend local tax laws, rather than push for legislative amendments that may not pass by the deadline.

The second bill, meanwhile, delivers a legal basis for blocking those foreign-based online gaming operations targeting Indian customers that do not register in India to pay GST.

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