GST Council sticks to its guns, imposes 28% tax on online gaming 

Union Finance Minister Nirmala Sitharaman with Union MoS for Finance Pankaj Chaudhary and Revenue Secretary Sanjay Malhotra during the 51st Goods and Services Tax (GST) Council Meeting, in New Delhi, on August 2, 2023.
| Photo Credit: PTI

The GST Council on August 2 blinked a little on technicalities and kept the door open for a review down the road, but stuck to its earlier decision to impose a 28% levy on the full face value of bets placed on online gaming, casinos and horse racing, with an eye on implementing it from October 1.

Finance Minister Nirmala Sitharaman, who chaired the Council’s meeting, said the Centre would now strive to amend the Goods and Services Tax (GST) law in Parliament’s current session itself to enable the implementation of the levy, despite dissent from Sikkim and Goa over the modalities of the tax for casino users.

Tamil Nadu Finance Minister Thangam Thennarasu raised concerns about the levy’s impact on the State-wide ban on online gaming, which Ms. Sitharaman said would be addressed in the language of the new norms to explicitly state the tax cannot be levied where a ban is in place.

Also read: Explained | Will 28% GST on online gaming affect its growth? 

Delhi government’s representative sought a fresh review for the online gaming sector, but most other States leaned towards sticking to the Council’s decision last month which had been taken after three years of deliberations, the Finance Minister conveyed after the virtual meeting.

The online gaming industry, which had termed the Council’s decision a death knell endangering billions of dollars of investments and thousands of jobs in the sunrise sector, remained anxious but appreciated a critical clarification on the valuation rules for the 28% levy, approved by the Council on Wednesday.

Simply put, if someone enters a casino by buying chips worth ₹1,000, plays a round and wins ₹300, the tax will not be levied on ₹1,300, but on the entry amount of ₹1,000 alone, Ms. Sitharaman explained. In a joint statement, the E Gaming Federation and Federation of Indian Fantasy Sports welcomed this would address their concerns of “repeat taxation”.

“The new tax framework, while clarifying and resolving uncertainty, will lead to a very burdensome 350% increase in GST and set the Indian online gaming industry back several years. However, it will allow gaming companies a fighting chance to innovate and rebuild the foundation of gaming in India,” they added.

“…Because Goa and Sikkim [who wanted the 28% levy on casino bets to apply on gross gaming revenue and not the entire face value] kept appealing that they were small States and needed consideration, the Council agreed to come back after six months after implementation to review the way in which this is getting implemented,”

Revenue Secretary Sanjay Malhotra hinted the scope of the review will likely be limited to issues about valuation and the tax rates, which can be tweaked through notifications and rules, while the GST law changes will be broader “enabling provisions”.

Apart from the central GST law amendments, States will also have to amend their GST laws for the new tax to kick in, but Ms. Sitharaman expressed hope it can be implemented from October 1.

While the changes will not be retrospective per se, Mr. Malhotra emphasised they are more in the nature of a clarification because betting, gambling and lottery are already included as actionable activities under the GST law.

The Revenue Department believes online gaming, horse racing and casinos are also in the nature of betting only, he said. The High Court of Karnataka has not upheld that stand, dismissing a ₹21,000 crore tax demand against Gameskraft Technologies. “We have filed a special leave petition on the matter yesterday [Tuesday] and whatever the Supreme Court decides, will prevail,” the Revenue Secretary said.