The Central and Integrated GST laws have been amended by Parliament to impose a 28 percent tax on the full face value of bets in online gaming, casinos, and horse race clubs. This move was introduced through the Central GST (Amendment) Bill, 2023, and the Integrated GST (Amendment) Bill, 2023, spearheaded by Finance Minister Nirmala Sitharaman. Additionally, these bills now mandate the registration of offshore e-gaming companies operating in India. Non-compliance with GST registration and tax payment norms by offshore platforms could result in a blocking of access.
Under the CGST amendment bill, ‘online gaming’ is defined as a game played on the internet or an electronic network. On the other hand, ‘online money gaming’ refers to online gaming where players pay or deposit money, including virtual digital assets (VDAs), with the expectation of winning money or VDAs. This includes games, competitions, schemes, or any other activities, regardless of whether the outcome relies on skill, chance, or both.
With the amendment to GST law, horse racing, casinos, and online money gaming will be treated similarly to lottery, betting, and gambling as actionable claims.
It’s important to note that casual online gaming that doesn’t involve money or any consideration will not be taxable under GST.
These amendments aim to combat money laundering, illegal income, black money, and other illegal activities associated with online gaming, while also curbing tax evasion.
The bill was passed by both Houses of Parliament without any discussion.
The states will now need to enact similar changes in their respective assemblies to align with the passage of CGST and IGST amendments.
Last week, the amendments were approved by the GST Council, chaired by Sitharaman and consisting of state ministers.
The amendments include providing clarity on the taxation of supplies in casinos, horse racing, and online gaming through the insertion of a provision in the Schedule III of the CGST Act, 2017. The amendment in the IGST Act introduces a provision that imposes GST liability on online money gaming services provided by offshore entities. These entities must obtain GST registration in India.
The GST Council, during its meeting on July 11, approved the levy of a 28 percent GST on the full face value of bets in online gaming, casinos, and horse racing. However, during its meeting on August 2, the Council decided to impose GST at the face value of entry-level bets placed in gaming platforms and casinos. This was decided despite the dissent expressed by three states: Delhi, Goa, and Sikkim.
For instance, if a bet of Rs 1,000 is placed and the player wins Rs 300, and if the player reinvests the winning amount of Rs 300 into the game, GST will not be levied on the winning amount.
At present, the online gaming industry pays GST at a rate of 18 percent on platform fees or commissions. These commissions typically range from 5 to 20 percent of the full face value of bets.
Horse race clubs are subject to an 18 percent GST on platform fees, though some pay 28 percent on the full face value.
These industries have been contesting the 28 percent levy on actionable claims in the form of betting and gambling through various legal means.
Casinos are currently paying a 28 percent GST on Gross Gaming Revenue (GGR).
Levying a 28 percent GST on the full face value of entry-level bets is expected to increase GST revenues.
These amendments intend to establish a comprehensive legal framework to address legal ambiguities and concerns of stakeholders.
According to estimates by NITI Aayog, the online gaming industry grew by 28 percent in 2021 to reach USD 1.9 billion.
The GST Council took into account the negative impact of online money gaming on society and particularly on the youth, in the form of ‘Internet Gaming Disorder’ caused by addiction.
Since the announcement of the GST Council’s recommendations, the online gaming industry has expressed serious concerns about the implications of the decision. They believe it will have negative consequences for the sector.
As a result, Mobile Premier League (MPL) recently laid off approximately 350 employees, or half of its India team, in order to mitigate the cost burden resulting from the increased GST rate of 28 percent.
Hike, founded by Kavin Bharti Mittal, which owns Rush Gaming Universe, also laid off about 55 employees, which accounts for more than one-fifth of its total workforce. This was done to alleviate the impact of the GST hike on online gaming.
Additionally, smaller gaming startups like Quizy have announced the closure of their businesses.
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Eugen Boglaru is an AI aficionado covering the fascinating and rapidly advancing field of Artificial Intelligence. From machine learning breakthroughs to ethical considerations, Eugen provides readers with a deep dive into the world of AI, demystifying complex concepts and exploring the transformative impact of intelligent technologies.
