Concerns over 28% GST on online gaming and casinos; AIGF say small companies' survival at risk

In some relief to the online gaming industry, the GST Council on Wednesday decided that 28% GST will be levied at the face value of entry-level bets placed in gaming platforms and casinos, even though three states -- Delhi, Goa and Sikkim -- expressed dissent.

The Centre will bring amendments to the Central GST law in the ongoing monsoon session of Parliament, following which states will pass the amendments to State GST law in their respective assemblies.

Offshore gaming platforms will have to register with GST authorities and pay taxes, failing which the government will invoke provisions of the Information Technology Act and block those sites.

The amended provisions in the GST law, which would specifically define online gaming, online money gaming, virtual digital assets used to pay for online games, and supplier in case of online gaming, will be effective from October 1.

The decision will be reviewed after 6 months of its implementation or in April 2024 by the GST Council to see if any change in the rule is required.

Briefing reporters after the 51st GST Council meeting held virtually, finance minister Nirmala Sitharaman said for GST levy, the valuation of the supply of online gaming and casinos will be done based on the amount paid at the time of entry into the game and not on what they pay in each game from winning amount.

"The Council recommended that valuation... may be done based on the amount paid or payable or deposited with the supplier by or on behalf of the player, excluding the amount entered into games bets out of winnings of previous games and bets and not on the total value of each bet placed. Entry (level) whatever they pay to get chips and not what they pay in each game," Sitharaman said.

Giving an example, the minister said if a bet is placed for say Rs 1,000, and the player wins Rs 300, then if the player again places a bet of Rs 1,300, GST will not be levied on the winning amount.

Sanjay Malhotra, Revenue secretary, said  "Today's decision is near unanimous only two states (Goa and Sikkim) objected to amendment related to casinos and one state (Delhi) concerning online gaming."

He further said that offshore gaming platforms will have to register themselves with the GST authorities and pay taxes accordingly.

Asked about the impact of the Council's decision on the ongoing legal cases in online gaming, Malhotra said the decision of the GST Council is only clarificatory as online gaming was always an actionable claim like betting and gambling on which 28 per cent GST is leviable.

Sudipta Bhattacharjee, Partner, Khaitan & Co, said the GST Council clarified that vis a vis online real money games ('fantasy' games as well as other real money games) the GST at 28% will be applicable on the actual cash/equivalent deposits made by players on an online gaming platform to commence gameplay and not on the winning amounts being redeployed by players for further gameplays.

"While this will certainly afford some amount of relief to the online real money gaming sector, many smaller startups in this segment may still get very badly hit once this higher GST comes into force," Bhattacharjee said.

Small companies that are into online real money-based gaming will not be able to survive due to the high Goods and Services Tax of 28 per cent, industry body All India Gaming Federation said on Wednesday.

"We believe the decision by the GST Council of valuation on deposits will severely impact the online gaming sector and result in a situation where a majority of players, including the MSMEs will no longer be able to survive in the face of the increased tax liability of 400 per cent," AIGF said in a statement.

The industry body said that only established and well-entrenched skilled gaming companies may be able to scrape through this change by using their existing capital reserves to counter the effects of substantially increased tax liability.

"However, even their revenues and valuations will significantly fall. Additionally, companies at their early growth stages, particularly those within the startup and the MSME sector will be disproportionately impacted.

"Moreover, the rampant illegal offshore gambling websites will thrive as efforts to block them have been ineffective till now," AIGF said.

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