The gaming industry in India it seems is in for a shock. Gaming and gambling companies, whether categorised as games of skill or chance, are currently being issued GST (Goods and services tax) notices running into tens of thousands of crores. Last week on Friday, casino operator Delta Corp received tax notices amounting to Rs 16,822 crore from the Directorate General of GST Intelligence.
Earlier in July 2023, the GST Council said it would impose the top GST slab of 28% on the full face value, irrespective of whether it is a game of skill or chance. However, in August, it offered some relief by suggesting that GST should be imposed on deposits rather than on every individual bet, to prevent multiple rounds of taxation. Skill gaming platforms currently pay 18% GST on the platform fees, also known as Gross Gaming revenue (GGR).
Online gaming companies have vehemently pushed back against this new tax regime saying the decision of the GST Council will “wipe out” the industry.
However, Revenue Secretary, Sanjay Malhotra, stated that the GST rates for real-money gaming had always been 28% based on the full face value, and the recent amendment was merely intended for clarification. Last month, the Lok Sabha passed amendments to two Goods and Services Tax bills, thus paving the way for the imposition of a 28% tax on online gaming, horse racing, and casinos, effective from October 1.
According to an exchange filing last week, while Delta Corp. received notice to pay an alleged tax liability of Rs 11,140 crore, three of its subsidiaries, Casino Deltin Denzong, Highstreet Cruises, and Delta Pleasure Cruises, received tax notices of Rs 5,682 crore.
What Is The Payable GST?
Girish Vanvari of Transaction Square, a tax regulatory and business advisory firm said, “When you play a game or you bet, you put in money into that respective app, say I put in Rs 100 in a company, Rs 10 may be for the platform charges and Rs 90 would be for the game I play. What typically also happens is this Rs 90 if I win keeps on multiplying and I play more games with it. So Rs 90 becomes 180, 200, 500 so on.” So, the question arises, what is the GST payable? Is GST payable on Rs 100, is GST payable on Rs 10 or is GST paid on the multiplied Rs 500 that the player won?
In May, the Karnataka High Court's ruling revoked a GST notice issued to the Bengaluru-based online gaming company Gameskraft Technology last year, which accused the company of evading Rs 21,000 crore in taxes. The Supreme Court, recently, on September 6, stayed Karnataka High Court's judgment.
According to Vanvari, some of the notices we see today are GST on the Rs 500 made by the player, that is, 28% of Rs 500. Whereas the argument by the people who run such businesses is that it should be 18 or 10%. “Now, there's Karnataka High Court decision in the Team of Gameskraft which says that it should be on 10%, and now there is a clarificatory amendment which says that it should be 28% on 100 not 28% on 500. So the dispute is all about what do you pay your GST on 10, 100 or 500.”
Calling it a “speculative business”, Vanvari said, “So when you gamble, suppose 100 becomes 500. On 400 you would pay speculative income tax depending upon which entity puts the bet and the rate would depend upon that. But whether GST is payable on 100 or 10 or 500 is where this law is going to be tested.”
No GST On The Winning Amount?
Based on the operations of these gaming companies, according to Vanvari, no indirect tax or GST is paid on the amount that one is actually winning or putting at play in a gaming or betting context. For example, if someone is putting in Rs 100 and the winnings are Rs 400, then according to the new law the GST should be on Rs 100.
On the nature of taxation and policy approach, Vanvari explained, “The way the amendment is that it is clarificatory in nature. So now, is the clarificatory amendment saying that the law was always like this or is it that from today onwards, the law will be like this? Those are things which we have to really very eagerly see, and evaluate how it is because to see that it is a clarificatory thing and all in the past should be taxed on 100 at 28%. I think many companies will go back. The players don't care because as far as GST has to be charged by the rendering of service, the render of services are the gaming.”
At present both publicly listed companies and app-based are having trouble with interpretation.
For example, if you put in Rs 100 in a casino, earlier you were paying only for that Rs 10 that was casino fees. Clarifying this further, Vanvari said, “For example, when you are depositing money in a bank and you're paying service charges to a bank, you pay GST only on the service charges, you don't pay deposit money. That's the debate. Is paying money in an account in a casino, is it an actionable claim or is it a service?”
When the 28% GST was announced in July, the gaming companies feared for the future of the booming industry, as the realisation for such amendments was not in sight in the recent past. “The Gameskraft issue as I read in the public domain has been in the air for the last year and a half. So for the year, or year and a half, this exposure was real and there was a hope that the Karnataka High Court would mitigate that exposure. But now with the clarification, the exposure is real. I'm not saying the law is right or wrong. I don't have a judgment on it.
What I'm saying is this is the issue and let's see how it works.”
Amid the GST notices being given to multiple gaming companies, the Goods and Services Tax Council is now reportedly considering a review of implementation-related concerns regarding the imposition of a 28% GST on the face value of online gaming and casinos. The assessment is anticipated to take place in the first quarter of the upcoming financial year. The review is likely to happen by the first quarter of the next financial year. The GST Council is also meeting on October 7, to evaluate the progress made by the tax changes to online gaming as previously approved by the council in its August meeting.