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Taxation of e-money gambling enterprises was a contentious topic that was anticipated to be resolved by the Goods and Services Tax (GST) Council. The Council finally imposed a 28% GST on bets made by players in online gaming after months of debate by the group of ministers (GoM), but only at the entry level to provide businesses some respite. The betting sector, on the other hand, is not delighted since they don’t want to pay GST on wagers. Platform fees, which the industry claims are how they make money by providing these services, are something they are happy to pay GST on.
Let’s use the example of an online gaming business that offers real money games and has four players to help us grasp the complete situation. Assume that each player wagered Rs. 100. There will be a total of Rs 400 in wagers. A platform charge of 10% of the wager is now paid to the relevant firm. The corporation would then receive Rs 10 from each player and Rs 40 overall. The prizes that winners receive can be added back into the game.
The sector requests merely 40 rupees for GST payment. The Council did vote to exclude the prize money used in the games from GST, however, and charge a 28% GST on purchases of Rs 400. In an effort to clarify how online gambling, casinos, and horse racing are taxed, the government recently announced changes to the Central GST (CGST) Act and the Integrated GST (IGST) Act. A provision to impose GST responsibility on online gambling services offered by offshore corporations is part of the IGST Act’s revision. In India, such organisations would have to register for GST. In the event that the conditions for registration and tax payment are not followed, the changes will also include procedures for barring access to online gambling sites using foreign servers. After the state governments likewise modify their state GST Acts, these revisions will take effect on October 1st of this year.
Businesses like Gameskraft Technology Private Ltd (GTPL) previously paid GST at 18% to the tune of approximately Rs 800 crore on the platform charge just for 2017–18 to 2021–22. MyTeam11 and Probo were two more businesses who followed suit. These businesses did, however, get letters from the GST authorities demanding that they pay a tax of 28% on the face value of their wagers. It was Rs. 21,000 crore for GTPL throughout the specified time. According to industry insiders, GST notifications were sent to the other firms mentioned above as well.
As previously mentioned, the most recent revisions exempted the redeployment of winning wagers from the 28% tax. According to some analysts, if similar reasoning were to be applied to Gameskraft, the tax obligation may drop to between Rs 5,000 and Rs 6,000 crore. This, however, is only possible if the new law is implemented retroactively and a new GTPL demand is made as a result.
Industry sources, who declined to corroborate the number, claimed that even if a 28% tax were applied to low-stakes wagers, the tax burden on e-gaming businesses would grow by more than 400% relative to the 18% platform fee that companies already pay.
“Rs 21,000 crore, or Rs 5,000–6,000 crore, is empty space. A platform shouldn’t be taxed on revenue that doesn’t arrive there. Only income earned should be subject to taxation, according to a source in the sector. The Karnataka High Court had overturned GTPL’s notice to seek GST in the amount of Rs 21,000 crore (plus interest and penalty) in May of this year, saying that games of skill, even if they included money, could not be taxed in the same way as gambling.
The order was challenged by the government in a special leave petition to the Supreme Court. As previously mentioned, a law was established to levy a 28% GST on new wagers in online real-money games. If the rule is enforced retroactively, GTPL may be subject to fines of Rs 5,000–6,000 crore, which the industry worried would put them in a similar scenario to Vodafone. However, according to government sources, because the modifications clarified things, there was nothing retroactive about the law.
Online games have always been subject to GST at a rate of 28% since they can give rise to legal action, according to official sources. According to the sources, the high court determined that games of skill constitute actionable claims but do not entail betting and are therefore exempt from GST. A top official stated, “We are amending the law to explicitly state that actionable claims in online real money games are subject to GST.”
According to insiders in the industry, the GST amendments’ intention to overturn the Karnataka High Court ruling by taxing online gambling enterprises at a rate of 28% of low-stakes wagers was evidenced by their inclusion in the law. Following the failure of an earlier attempt to tax internet gaming as betting and gambling, the terms “online gaming” and “online money gaming” were finally inserted in the GST statute. According to them, even if the government levies a 28% tax on low-stakes wagers, it should take effect on October 1, 2023, and be prospective. However, if the GST authorities enforce the rule retroactively because it was not in effect from 2017–2018 to 2021–2022, it would destroy the sector because no one will have the funds to pay, according to a second industry source.
Although just theoretically, the sector is opposed to a 28% levy on new bets. Apparently not fair nor sustainable, according to sources in the industry, is this 400% rise. In addition to killing out smaller players, they feared that in the long term, this will probably lead to monopolies and limit the options available to consumers and those who play the game. The negative impact on value and jobs was also mentioned. Before the decision by the GST Council was announced, MPL allegedly reduced its employment by 50% in less than a month.
According to one of the insiders within the business, “In a nutshell, the law is an atom bomb, and retrospective application will be like a hydrogen bomb.”
The argument that the gambling business doesn’t want to pay tax this way because it wants to keep the identity of the people who play these games secret has raised some concern among those who support a 28% GST on wagers. Industry insiders claimed the concern is totally unfounded when approached. As of right now, only online transactions are accepted by all online skill game businesses. Deposits of cash are never accepted. The source may thus always be found. One of the reports stated that payment methods include credit or debit cards, net banking, or UPI from the users’ bank accounts.
According to the sources, there is no distinction between online gaming organisations and any other online middleman, like Amazon. Even gains are credited back to customers’ KYC-verified bank accounts, they said. The sources noted that the Ministry of Electronics and Information Technology (MeitY) has also established KYC standards that online gambling companies must adhere to. The aforementioned industry source stated that “industry has welcomed the MeitY guidelines and will conform to it in letter and spirit.”
These recommendations stated, among other things, that online real money games provided by intermediaries will be governed by MeitY-recognized self-regulatory bodies (SRB). According to sources, the sector thought that MeitY would swiftly approve SRBs to allow all of these laws to take effect.