GST On Online Gaming: What To Expect On 50th GST Council Meet Today?

Today the GST Council will hold its 50th meeting. The meeting will be presided over by Council Chair Nirmala Sitharaman, Union Finance Minister. According to sources, the proposed taxation in the Group of Ministers (GoM) report on online gaming, casinos, and horse racing is expected to go up from 18% to 28% GST. Top online gaming companies have addressed a letter to the Central Board of Indirect Taxes & Customs (CBIC) via the Ficci Gaming Committee pleading with it not to raise the GST rate for the industry.

Commenting on the expected outcome of the GST Council Meeting on online gaming, Saket Patawari, Executive Director, Indirect Tax, Nexdigm said "A significant matter which could be taken up by the GST Council is the taxation of online gaming, casinos and race-courses. It may be pertinent to note that the Council could not take up the discussion on taxation of these items during its last meeting owing to the paucity of time to go through the recommendations of the GoM in their second report. However, considering the divergent views and lack of consensus among the GoM, the ongoing discussions with MEITY, as well as the recent decision of Karnataka High Court in Gameskraft Technology Pvt. Ltd. which quashed a Rs. 21,000 Cr. demand raised by DGGI, the Council could take more time to take a final decision on this matter."

"The long-standing demand of constituting the GST Appellate Tribunal (GSTAT) may finally be addressed during the upcoming GST Council meeting, which will mark a half-century in the Council's history as well as ring in the 7th year of the most significant indirect tax reform on July 1st. The Finance Act 2023 already envisages the framework for Tribunal benches across the States, including a Principal Bench in New Delhi. It is likely that pursuant to the GST Council's nod, the relevant amendments to the GST legislation would be notified thus paving the way for setting-up these benches by the end of 2023," Saket Patawari added.

"Considering the large volume of cases already piled up due to the pendency of Tribunal benches, it would be an opportune time for the Council to announce a one-time Amnesty Scheme to settle the disputes with full waiver of interest and penalty for procedural/technical lapses. This would provide a huge relief to the taxpayers and reduce the burden on the Appellate forum," said Saket Patawari.

Other agenda items could be automation of scrutiny processes and revenue augmentation measures, while the GST rates rationalization exercise could be deferred until the general elections next year. The GST Council is also likely to clarify on certain procedural aspects, such as the 2-factor authentication for e-way bill / e-invoice generation, the time limit to generate e-invoices (which would soon apply to businesses with Rs. 5 Cr. plus turnover), while providing a teaser on pre-filled GST returns akin to the Annual Information System used by the Income Tax Dept," said Saket Patawari.

Ankur Mudgill, Co-Founder & Director, Super4 said "A change in the GST rate from 18% to 28% on gross gaming revenue (GGR) would have a significant impact on the online gaming industry, particularly from a fantasy gaming perspective. The increase in the tax rate would lead to a higher financial burden on fantasy gaming operators, as they would have to pay a larger portion of their revenue as GST. This could potentially reduce the profit margins for these operators and may result in increased costs for players. Moreover, the higher tax rate could discourage new players from participating in fantasy gaming, affecting the growth of the industry. Overall, the change in GST rate could pose challenges for the online gaming industry, requiring operators to reassess their business strategies and potentially pass on the increased costs to the consumers."

Karan Gandhi Co-Founder & CRO of PokerDangal said "A higher GST rate of 28% on gross gaming revenue would cast a shadow over the thriving online gaming industry, particularly in the realm of poker gaming. The increased tax burden not only puts pressure on operators' profitability but also risks dampening the enthusiasm of players. It becomes imperative for industry stakeholders to adapt swiftly to this change, finding innovative ways to streamline operations and offset the additional costs. Ultimately, striking a balance between tax obligations and sustaining a vibrant gaming ecosystem is crucial for the continued growth and success of the online gaming industry amidst evolving regulatory landscapes."

"The valuation in case of taxation of online gaming, casinos, and horse racing is a crucial aspect. Generally, Gross Gaming Revenue is the revenue an operator generates from the bets that are made through their platform. It is calculated by subtracting the players' winnings from the total amount that was wagered. A levy at 28% on the entire amount, which includes the winnings distributable to the players, will reduce the pool which in turn, could compel users to migrate to platforms based in other countries with more favorable tax rates or even push them to illicit, unregulated platforms. Another aspect worth considering is that taxation of winnings could result in long drawn litigation," said Saket Patawari, Executive Director, Indirect Tax, Nexdigm.

The taxation on online gaming, casino, and horse racing is likely to be addressed during the 50th GST Council. In addition to discussing online gaming, the Council is expected to debate and establish a GST GST Appellate Tribunal.