As the October 1st deadline approaches for the implementation of a 28% Goods and Services Tax (GST) on the entire face value of bets made in online money games, a significant disagreement has emerged between the industry and the government regarding whether this tax should apply prospectively or retrospectively.
The industry has asserted that the new tax should be implemented only on bets made in the future, indicating prospective application. However, the government’s stance is that the changes made to the Central Goods and Services Tax Act, 2017 (CGST Act) and its associated rules are merely intended to provide clarification. According to the government’s perspective, the tax has been applicable since 2017, and the recent amendments are essentially meant to reiterate and clarify this pre-existing tax liability.
Read More: 28% GST on Online Gaming: An Overview of GST Council’s Bold Decision
This difference in interpretation revolves around whether the changes in the law are genuinely clarifications or represent a shift in the tax regime for online money games. This disagreement underscores the need for legal and regulatory clarity to resolve this matter and ensure consistency in the application of GST to the industry.
The focus of attention is now directed towards the Supreme Court, which is scheduled to review the Central Government’s appeal against the Karnataka High Court’s decision to invalidate GamesKraft’s GST notice. It’s worth noting that the Supreme Court has stayed the Karnataka High Court‘s order quashing GST notice worth Rs. 21,000 crore.
Read Order: GST on Online Gaming: Karnataka HC quashes SCN of Rs. 21000 Crores against Gameskraft
The Division Bench of Chief Justice of India DY Chandrachud, along with Justices JB Pardiwala and Manoj Misra, has called for a response from Gameskraft and scheduled a follow-up hearing in three weeks from the date of the order that is 6th September 2023.
Read Order: Blowback to Gameskraft: Supreme Court stays Karnataka HC order quashing Rs. 21000 Cr Online Gaming GST Demand
Gameskraft had received the notice from GST authorities on September 8th of the previous year, demanding a staggering ₹21,000 crore. This notice was subsequently contested in the High Court, where a single-judge issued a stay order on September 23, 2022, citing numerous contentious aspects of the case.
A GST raid at Gameskraft’s office in November 2021 resulted in an order to freeze all the company’s bank accounts. Initially, Gameskraft was alleged to have evaded ₹419 crore in taxes, but this figure escalated to ₹5,000 crore and eventually surpassed ₹21,000 crore after July 2022. The authorities then altered their narrative, suggesting that Gameskraft may be involved in betting.
In an Interview, the Revenue Secretary Sanjay Malhotra said that “As far as we are concerned, GST rates on online gaming, casinos, and horse racing were always 28 per cent… on the face value. So, the question of retrospective amendment does not arise because this is only in the nature of clarification.”
Sudipta Bhattacharjee, Partner, Khaitan & Co., representing the Gameskraft in the legal dispute of Rs. 21,000 crores GST demand said 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.”
Tanushree Roy, who serves as the Director of Indirect Tax at Nangia Andersen India, has expressed her perspective on the matter. She noted that the government’s assertion regarding the proposed amendments being merely clarificatory in nature will be subject to scrutiny by the Supreme Court. If the Supreme Court ultimately determines that these amendments are not clarificatory but rather substantive changes to the law, the consequence could be that they are applied only to future cases (prospectively).
The Union Finance Minister Smt. Nirmala Sitharaman and other tax authorities have clarified that the GST is to be levied at 28 per cent on the full value of the bets placed in an online money game. Presently, the industry is imposing GST only on platform fees, which is equivalent to the gross gaming revenue, at a rate of 18%. These platform fees, as explained by Tanushree Roy, tend to differ and typically fall within the range of 7% to 20% of the initial amount contributed by gamers on these platforms.
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