28% GST on entry level bets in online gaming, casinos

In some relief to online gaming industry, the GST Council on Wednesday (August 2) decided that 28 per cent GST will be levied at 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 Information Technology Act and block those sites.

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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 April 2024 by the GST Council to see if any change in rule is required.

Briefing reporters after the 51st GST Council meeting held virtually, finance minister Nirmala Sitharaman said for the purpose of GST levy, the valuation of 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.

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“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 bets 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, then GST will not be levied on the winning amount.

So Goods and Services Tax (GST) will be levied at the entry level in case of online gaming and casinos.

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“Today’s decision is near unanimous only two states (Goa and Sikkim) objected to amendment related to casinos and one state (Delhi) with respect to online gaming,” revenue secretary Sanjay Malhotra said.

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

“We are setting up DG GST intelligence officers cell which will be alert to all these websites, portals, not only pertaining to online gaming but all digital services being provided without tax being paid… then on a regular basis we will be monitoring them and taking action under Information Technology Act,” Malhotra said.

The GST Council – the highest decision-making body of the new indirect tax regime that comprises Union finance minister and representatives of all states – discussed the language of amendments that will be needed to enabling taxing of online gaming and casinos.

“We will undertake amendments to CGST Act at the earliest, in this session itself. From October 1, it will be implemented,” Sitharaman said.

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

“The Karnataka High Court had not upheld that stand and we have already filed an SLP yesterday. So we are in appeal and whatever is decided by the Supreme Court that will prevail for the period till we have amended the law and issued the notification,” the Secretary said.

The Council had at its meeting last month decided to levy a 28 per cent GST on full face value of bets placed and Wednesday’s meeting was to deliberate on the tax law changes that would be required to implement it.

Sitharaman said Delhi finance minister opposed 28 per cent tax on online gaming and wanted the matter to go back to group of ministers. Goa and Sikkim, whose revenues come from casinos, said 28 per cent GST should be levied on GGR (gross gaming revenue) or platform fees and not on face value.

Sitharaman, however, said other states, including Chhattisgarh, West Bengal, Karnataka, Gujarat, Maharashtra and Uttar Pradesh, wanted the decision taken at the Council meeting last month to be implemented at the earliest.

Tamil Nadu, which has banned online gaming in the state, had expressed apprehension that with the GST Council decided to levy 28 per cent GST on online gaming would it be legalised in the state.

Malhotra said just by including online gaming within the purview of Act and making them liable to tax will not result in legalising online gaming in their state if they have banned it.
E Gaming Federation (EGF) and Federation of Indian Fantasy Sports (FIFS) in a joint statement said the government has addressed the industrys concerns on the issue of repeat taxation.

Abhishek Jain, Indirect Tax Head & Partner, KPMG, said: “Alignment of major provisions for valuation of supply for casinos and online money gaming with no repetitive GST on each bet placed, brings some relief to the sector.

“With stricter provisions for offshore gaming companies also being recommended would likely provide a level-playing field for Indian companies,” Jain said.

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 per cent 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.