The online gaming industry is reeling from the GST Council’s decision to impose a tax rate of 28 per cent
At the 50th meeting of the GST Council on July 11, a number of key decisions were taken ranging from rate tweaks to tighter registration processes for businesses, and most importantly, on the tax treatment of online gaming.
There were also other important decisions, like the one on multi-utility vehicles (MUVs) that could make them slightly more expensive after the compensation cess was increased to 22 per cent on some categories.
But it wasn’t all bad news. The Council brought some cheer for moviegoers by cutting the GST rate on food and beverages sold separately in cinema halls to 5 per cent from 18 per cent earlier. It also cleared the appointment and service terms for members of the GST Appellate Tribunal.
However, the decision that was most eagerly awaited was the one on taxing online gaming, casinos and horse racing. After three years of deliberation and two rounds of reports by a group of ministers, the Council decided to impose a uniform rate of 28 per cent on the full amount. GST would be levied on the face value of the chips purchased at casinos, on the value of bets placed with the bookmaker or totalisator in the case of horse racing, and on the full value of bets placed in online games. It also decided not to differentiate between games of skill and those of chance.
Revenue Secretary Sanjay Malhotra tells BT the decision of the GST Council was unanimous. “The tax has to follow certain principles of equity and fairness,” he says. He also clarifies that online games played for skill without a wager is taxed at 18 per cent. It is only when stakes are involved on outcomes that the rate increases to 28 per cent on the total face value. This move is expected to fetch higher revenue for the government from the estimated Rs 1,700 crore raised in FY23 from GST on online gaming.
Union Finance Minister Nirmala Sitharaman, who chairs the GST Council, stressed that the intention was not to finish off the industry. But it has been seen as a severe blow all the same because the industry had pitched for an 18 per cent rate and that too only on the platform fee.
“This is an unexpected development for the industry in light of the positive steps in the TDS and self-regulatory regime,” says L. Badri Narayanan, Executive Partner at Lakshmikumaran & Sridharan Attorneys.
The online gaming industry in India was estimated at $2.6 billion in FY22. The players are now waiting for the notification to fully gauge the impact.
