In the 50th meeting of the GST Council, Union Finance Minister Nirmala Sitharaman unveiled the decision to apply a 28% GST rate to online gaming, horse racing, and casinos on its face value. Following this announcement, subsequent council sessions provided the additional details regarding the necessary changes to the GST regulations. It was also noted that this amendment would be effective for the initial six months, after which a comprehensive review would take place.
The gaming sector has consistently voiced its concerns, asserting that it shouldn’t be classified on par with gambling or betting due to its skill-based nature. Moreover, the government failed to differentiate games of skill and chance.
During the GST council meeting, two divergent viewpoints emerged. States such as Maharashtra and Uttar Pradesh advocated for swift GST implementation, while Goa expressed reservations about its impact on casinos. Faced with this scenario, the council adopted a neutral stance to tackle the issue.
While one aspect involves expediting the implementation, for instance, aiming for its enactment starting from October 1st, 2023, the other facet entails a subsequent assessment after a span of six months from its initiation. The primary goal behind the imposition of a 28% GST rate is to enhance revenue generation.
Sudipta Bhattacharjee, Partner, Khaitan & Co., representing the Gameskraft in the legal dispute of Rs. 21,000 crores GST demand said to Taxscan that “The GST Council clarified that vis a vis online real money games (‘fantasy’ games as well as other real money games) the GST at 28% will be applicable on the actual cash/equivalent deposits made by players on an online gaming platform to commence gameplay and not on the winning amounts being redeployed by players for further gameplays. While this will certainly afford some amount of relief to the online real money gaming sector, many smaller start-ups in this segment may still get very badly hit once this higher GST comes into force – some of them possibly even before the expiry of the review period of 6 months as mentioned in the press briefing. The problem remains that GST, despite being a tax on supply of goods/service, is being levied on a value that is much higher than the actual revenue earned by the online gaming platforms for their supply of facilitation services to players. Though a reconsideration was sought by the State of Delhi, it was unfortunately overruled.”
He added that “Investors in this sector may continue to be concerned given the ‘blow hot, blow cold’ approach towards online gaming as a sector where on the one hand, the sector is lauded and encouraged through ‘light touch’ regulations by the MeITY and on the other hand punitive taxation is reaffirmed to be imposed under GST (despite several pleas from the sector) by levying the same level of GST as ‘betting and gambling’ on online games of skill, ignoring decades of settled legal position that games of skill cannot be equated with gambling.”
Regarding the issue of Gameskraft, a Single Bench of Justice S. R. Krishna Kumar quashed the contested GST Show-Cause Notice (SCN) against the petitioner Gameskraft which had imposed Rs. 21,000 Crore at 28% GST on online gaming services provided to gamers.
The entire revenue of the online gaming industry in India was estimated approximately to be in the range of INR 16 to 18,000 crores last year; the GST demand on Gameskraft (of Rs 21,000 Crores) alone exceeded the entire revenue of the whole sector in India – clearly, an absurdity!
Read More: GST on Online Gaming: Karnataka HC quashes SCN of Rs. 21000 Crores against Gameskraft
However, the Central Government has filed the Special Leave Petition before the Supreme Court against the ruling of the Karnataka High Court in the Gameskraft case on August 1st 2023. The same was confirmed by the Revenue Secretary Sanjay Malhotra in the press meet of the GST meeting held on 2nd August 2023.
Read More: Central Govt files SLP before Supreme Court against Karnataka HC’s ruling on Gamerskraft
The GST Council in its 51st meeting recommended certain amendments in the Central Goods and Services Tax (CGST) Act 2017 and Integrated Goods and Services Tax (IGST) Act 2017, including amendment in Schedule III of CGST Act, 2017, to provide clarity on the taxation of supplies in casinos, horse racing and online gaming.
States like Kerala have expressed concerns in the GST Council regarding the determination of the place of supply for online gaming. In response, the Revenue Secretary assured that a notification or rules will be issued as necessary to address the matter.
The Revenue secretary clarified that the place of supply is a general concern and not specifically limited to online gaming. It includes services delivered online from one location while being utilized in other locations. Therefore, there will be no amendments concerning this matter, but notifications or rules will be issued to provide further clarification on the subject.
Another economic consideration linked to this imposition pertains to the employee layoffs. Companies are leaning towards downsizing their workforce to accommodate the GST payments. This action will undoubtedly impact the employees and, over time, could also create repercussions on the overall economy.
Read More: 28% GST on Online Gaming: Will it affect Employees of Gaming Companies Adversely?
Games like chess, poker, and even some video games that require strategic thinking and skill development, which set them apart from conventional forms of gambling or betting, were the subjects of the gaming industry’s concerns. They contended that since skill-based games shouldn’t be subject to the same tax treatment as games of chance, the government must adopt a precise and objective standard to distinguish between the two groups.
Challenges are inevitable when introducing something new. It’s a relief for the industry that the government is prepared to conduct a thorough assessment of the situation following the initial six months of implementation.
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