GST meeting: At the GST meeting, central and state tax officials are expected to present a detailed “status report” regarding taxation related to online gaming and similar activities. This report will specifically outline the collection of GST revenue from the online gaming industry both pre and post October 1, 2023.
As of October 1, 2023, a 28% GST was imposed on introductory bets placed on online gaming platforms and casinos. Prior to this date, many online gaming entities had refrained from paying the 28% GST, citing differing tax rates for games of skill versus games of chance.
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Earlier, a GST rate of 18% was applied specifically to the platform fee within the online gaming sector. However, during a meeting held on July 11, 2023, the GST Council made the decision to subject online gaming, casinos, and racecourses to a higher tax rate of 28% on the entire amount wagered. These revised tax regulations officially came into effect on October 1, 2023.
In a meeting held by the GST Council in August 2023, it was clarified that online gaming platforms must adhere to the 28% tax regulation. Consequently, amendments were made to the Central GST law to ensure clear and consistent taxation policies within this sector.
The online gaming companies have raised concerns regarding the 28% GST rate and the issuance of retrospective tax notices. In December 2023, Finance Ministry Nirmala Sitharaman disclosed to the Rajya Sabha that a total of 71 show cause notices, amounting to over Rs 1.12 lakh crore in GST liabilities, had been sent to online gaming companies for the financial years 2022-23 and 2023-24 (up to October 2023). The companies are hopeful that the Council will address these matters in due course.
What are the expectations?
“The GST Online gaming Industry has been eyeing on the GST Council to take note of its representations regarding the high tax rate and instead have made representations and argued that GST be calculated based on gross gaming revenue instead of the full-face value. Thus, clarity on retrospective levy of GST on online gaming will provide a lot of certainty to the online gaming companies many of whom have been served show cause notices demand GST of thousands of crores, particularly the startups. The Government must give a breather to the companies and look at feasibility for the entire sector by issuing a clarification and enable them to develop a suitable business model in view of the amendments and its existence. However, due to the current scenario, and the revenue involved, this issue may in all likelihood take a backseat for sometime,” said Smita Singh – Partner – S&A Law Offices.
“On 28% GST on deposits for online gaming, it was promised to review impact on stakeholders after 6 months of implementation. The industry expects the 54th GST council meeting to review the impact of high rates of taxation levied on the sector and growing trends of grey market players. While the matter remains sub-judice before the Supreme Court, the industry expects the GST Council to provide some direction in terms of newly introduced Section 11A for show cause notices (SCN’s) issued for past period. Additionally, the industry players are also looking forward for some clarifications on issues such as valuation and treatment of discounts, promotions and incentives under new deposit-based regime in line with clarification provided for TDS deduction under online gaming,” said Asish Philip, Partner, Lakshmikumaran and Sridharan.
Bleak chances
However, it has been reported that online gaming companies, along with casinos and horse racing clubs, are unlikely to receive any relief from the GST Council during this meeting. Last week, Karnataka Revenue Minister Krishna Byre Gowda, stated that there may not be any alterations to the GST taxation on the online gaming industry. He emphasized that there was no observed disturbance following the enforcement of the new tax rate, dismissing previous apprehensions as unfounded.
Gowda highlighted that all online gaming enterprises reported increased revenue figures. In certain regions, such as Maharashtra, Karnataka, and the National Capital Region of Delhi, revenue has surged by three to fourfold for some states.
“The GST Council took a decision after two years of deliberations. Karnataka was a vocal proponent of the decision. Prior to that, concerns were expressed that the GST levy would lead to wipe out of the (gaming) industry, loss of jobs and the online gaming sector would go into the dark net… As we have noticed, nothing of that sort has happened,” Gowda told the Economic Times.
He added that since last year the revised GST rate and the method of levying GST on online gaming are clearly working well. “The system has stabilised. It is working well. There is no justification for re-examining the method of GST on online gaming,” he added.