Parliament has granted approval to amendments made to the Central and Integrated GST laws. These amendments entail the imposition of a 28 percent tax on the full face value of bets placed in online gaming platforms, casinos, and horse race clubs.
In addition, the Central GST (Amendment) Bill, 2023, and the Integrated GST (Amendment) Bill, 2023, led by Finance Minister Nirmala Sitharaman, make it compulsory for offshore e-gaming companies operating in India to register. Non-compliance with GST registration and tax payment norms by offshore platforms may result in the blocking of access to their services.
The CGST amendment bill precisely defines ‘online gaming’ as a game played on the internet or an electronic network.
The term ‘online money gaming’ refers to online gaming where players pay or deposit money, including virtual digital assets (VDAs), with the hope of winning money or VDAs. This includes games, schemes, competitions, or any other activity, regardless of whether the outcome or performance is based on skill, chance, or a combination of both.
With the amended GST law, horse racing, casinos, and online money gaming will be considered actionable claims, similar to lottery, betting, and gambling.
Sources have stated that casual online gaming, which does not involve any monetary transactions, will not be subjected to GST.
These amendments aim to combat money laundering, illegal income, black money, and other illicit activities associated with online gaming, as well as to prevent tax evasion.
The bill was approved by both Houses of Parliament without any deliberation.
Following the enactment of CGST and IGST amendments, states will need to make similar changes to their state GST laws in their respective assemblies.
The GST Council, chaired by Sitharaman and comprising state ministers, approved these amendments last week.
The amendments specifically focus on inserting provisions in the Schedule III of the CGST Act, 2017, to provide clarity regarding the taxation of supplies in casinos, horse racing, and online gaming.
The amendment made to the IGST Act relates to the inclusion of a provision that imposes GST liability on online money gaming provided by offshore entities. These entities will now be required to register for GST in India.
During its meeting on July 11, the Council approved a 28 percent GST levy on the full face value of bets placed in online gaming platforms, casinos, and horse racing. However, during its August 2 meeting, the Council decided that GST would be levied only on the face value of entry-level bets placed in gaming platforms and casinos, even though three states – Delhi, Goa, and Sikkim – expressed their dissent.
For instance, if a bet is placed for Rs. 1,000 and the player wins Rs. 300, and if the player redeploys the winning amount of Rs. 300 into the game, then GST will not be levied on the winning amount.
Presently, the online gaming industry pays GST at a rate of 18 percent on platform fees/commissions, with commissions ranging from 5 to 20 percent of the full face value of bets.
With regard to horse race clubs, some are paying 18 percent GST on platform fees, while others are paying 28 percent on the full face value.
These industries are currently disputing the 28 percent levy on actionable claims related to betting and gambling through various legal avenues.
Similarly, casinos are currently paying 28 percent GST on Gross Gaming Revenue (GGR).
The imposition of 28 percent GST on the full face value of entry-level bets will result in increased GST revenues.
These amendments aim to establish a strong legal framework to eliminate legal ambiguities and address the concerns of various stakeholders.
The online gaming industry experienced a growth of 28 percent in 2021, reaching an estimated value of USD 1.9 billion, according to NITI Aayog estimates.
Sources have said that while making recommendations, the GST Council took into account the negative impact of online money gaming on society, particularly on youth, due to the addiction to online gaming, which is known as ‘Internet Gaming Disorder’.
Since the announcement of the GST Council’s recommendations, the online gaming industry has raised serious concerns about the implications of this decision on the sector. They believe that this move will have negative consequences for the industry.
As a result, Mobile Premier League (MPL) recently laid off about 350 people, representing half of its India team, in order to mitigate the cost burden resulting from the increase in GST rates to 28 percent.
In a similar move, Hike, founded by Kavin Bharti Mittal and the owner of Rush Gaming Universe, laid off approximately 55 employees, accounting for more than one-fifth of its total workforce, to absorb the impact of the GST hike on online gaming.
Additionally, a few small gaming startups, such as Quizy, have announced the closure of their businesses.
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Basant Kasayap is an entertainment aficionado who delves into the glitz and glamour of the entertainment industry. From Hollywood to Bollywood to regional cinema, she offers readers an insider’s perspective on the world of movies, music, and pop culture.
