The GST Council’s recent decisions regarding the taxation of online gaming have created a complex landscape for industry stakeholders. Following a meeting on July 11, 2023, the council imposed a substantial 28% GST on online gaming, casinos, and racecourses, effective from October 1, 2023. This marked a significant increase from the previous 18% rate, which applied only to platform fees within the online gaming sector.
Background on Tax Rate Changes
Before the implementation of the new tax rate, many online gaming companies hesitated to pay the higher 28% GST, citing varying tax rates for games of skill versus games of chance. The recent regulations now apply the 28% GST to the entire amount wagered on gaming platforms and casinos, leading to widespread concern among operators.
At the August 2023 GST Council meeting, officials discussed the collection of GST revenue from online gaming, analyzing data from both before and after the October implementation. The council aimed to provide clarity on how the new tax structure would affect the industry.
Concerns from Online Gaming Companies
Online gaming companies have voiced their apprehensions regarding the 28% tax rate and the issuance of retrospective tax notices. Finance Ministry Nirmala Sitharaman revealed that 71 show cause notices had been issued to gaming companies, amounting to over Rs 1.12 lakh crore in GST liabilities for the financial years 2022-23 and 2023-24 (up to October 2023). Stakeholders are urging the council to consider calculating GST based on gross gaming revenue rather than the full-face value, as this could ease the financial burden on operators.
Experts believe that clarity on retrospective GST levies could provide much-needed certainty for the online gaming industry, particularly for startups facing substantial show cause notices. Smita Singh, Partner at S&A Law Offices, emphasized the need for the government to offer support and develop a sustainable business model for the sector.
Expectations from the Upcoming GST Council Meeting
As the 54th GST Council meeting approaches, industry players hope for a review of the impact of the high tax rate and an evaluation of the increasing grey market for online gaming. While some matters are currently pending before the Supreme Court, stakeholders are looking for guidance on issues related to valuation and treatment of discounts and promotions under the new deposit-based regime.
Asish Philip, Partner at Lakshmikumaran and Sridharan, noted that industry players are particularly interested in clarifications regarding newly introduced provisions related to show cause notices.
Limited Relief Anticipated
Despite these expectations, recent statements from Karnataka’s Revenue Minister Krishna Byre Gowda suggest that online gaming companies, casinos, and horse racing clubs may not receive any significant relief from the GST Council. He reported that the new tax rate has not disrupted the industry, with many online gaming enterprises experiencing increased revenues. In some regions, such as Maharashtra, Karnataka, and Delhi, revenue has reportedly surged by three to fourfold since the tax changes were implemented.
Minister Gowda reiterated that the GST Council had deliberated extensively before deciding on the revised tax rates, and current observations indicate that the system is functioning effectively, diminishing the likelihood of revisiting the taxation methods.
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