Background

The GST Council, as per the 47th GST Council Meeting, reconsidered the report submitted by the Group of Ministers (GoM) on the issues pertaining to the taxation of casinos, horse racing, and online gaming. The issue before the GoM was whether to impose a 28% GST on the face value of bets, or gross gaming revenue, or just the platform fees. The GoM was convened by Meghalaya Chief Minister, Conrad Sangma, and had members from eight states including West Bengal, Uttar Pradesh, Goa, Tamil Nadu, Telangana, Gujarat and Maharashtra.

50th Meeting of GST Council

The 50th Meeting of GST Council was conducted on July 11, 2023, under the chairmanship of the Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman was convened to decide whether the tax should be levied on gross gaming revenue or fees charged by the platform or on the full face value of bets put in by players of online games. Therefore, the Council made the following deliberations during the Meeting based on the GoM final report:

  1. To make suitable amendments to law to include online gaming and horse racing in Schedule III as taxable actionable claims;
  2. All three namely, Casinos, Horse Racing, and Online gaming to be taxed at the uniform rate of 28%.
  3. Tax will be applicable on the face value of the chips purchased in the case of casinos, on the full value of bets placed with bookmaker/totalisator in the case of Horse Racing and on full value bets placed in case of the Online Gaming.

However, the effective date for 28% GST levy is yet to be notified by the government.

State Views

The decision has come in the wake of the following views of various States:

  1. West Bengal and Uttar Pradesh- The States opined that 28% GST should be levied on all three activities on full face value of the bets placed;
  2. Gujarat- GST should be levied on platform fees only;
  3. Meghalaya- Suggestions as to leaving 28% tax on GGR or platform fees or commission charged on casinos, online gaming and horse racing. It was further suggested that a special mechanism to carve out an '' for the purpose of pooling in prize money for payout to winners would make administration of tax easier.
  4. Tamil Nadu and Telangana- These states suggested that if the GST Council determines that three activities are not actionable claims of betting and gambling, then a 28% tax should be levied
  5. Maharashtra – The state while suggesting a 28 per cent rate for all three supplies, argued that there should be no differentiation in taxation based on whether the activities involve skill or chance, and the valuation rules should reflect this. It proposed that a suitable abatement be provided for determining the taxable value of supply of the actionable claim. 6. Goa – Goa differed in its views and opposed the 28% GST move thereby favouring the current rate of 18% tax on platform fees levied by the gaming operators.

Industry Views

The decision to increase the rate of GST levied on online games has come as a shocker for the $1.5 billion online gaming industry as a whole given the surge in popularity of online games. Majority of the online gaming industry experts do not favour the said decision primarily because the said move is likely to hamper investments and revenue generation potential of the sector. However, on the contrary government officials cite major concerns about the rise in addiction with rapid rise of online gaming. Thus, the move to increase tax rate is perceived as 'de-addiction measure'.

Current Scenario

Presently, the GST regime differentiates online games on the basis of skill and chance. A game of skill is where the outcome of the game is dependent on the expertise, practice and experience of the player and not on merely on the chance. The games of chance are treated and classified and therefore are subject to higher rate of tax as compared to game of skill under Rule 31A of the Central Goods and Services Tax Rules, 2018 (CGST Rules) as gambling, betting and horse racing. There is no doubt that the decision has received reverberations from the gaming industry as the same is likely to affect the revenue generation capacity of online games however, the actual impact can only be ascertained once 28% GST is implemented.

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