Online skill gaming may soon get costlier with the Group of Ministers (GoM) unanimously deciding on recommending 28 per cent Goods and Services Tax (GST) in a meeting held on this Wednesday. Currently, skill games are charged at 18% while gambling and lottery are charged at 28%. The tax is currently imposed on the service fee a platform charges for its online gaming services, and not on the winning amount. For now, there is no clarity on whether the existing practice will be retained or as suggested by the Department of Revenue, the tax will be levied on the gross entry amount.
On May 18, Chairman of GoM and Meghalaya Chief Minister Conrad Sangma tweeted that GoM arrived at a consensus and a report will be submitted to the Finance Minister in the next meeting.
Gaming and Technology Lawyer Jay Sayta said to impose GST on entire value, “Centre and all states will have to amend Schedule III of CGST & SGST Acts to exempt stake value of games of skill from the meaning of actionable claims and besides will require amendments to Rule 31A of CGST & SGST Rules as well. This will result in prolonged litigation. It is possible that some states like Goa which depend on tourism revenue may not issue corresponding amendments to SGST Act or Rules or give some relaxation to companies. Further, the centre will have to issue ordinance and amend Rules, the process may take time after GST Council approval.”
The government had in May last year set up a panel of state ministers for better valuation of services of casinos, online gaming portals and racecourses for levying GST.
After a series of exits, the GoM was reconstituted recently. The current GoM, headed by Meghalaya chief minister Conrad Sangma, met on Monday and discussed the applicable GST rate on these three services.
Real Money Gaming in India, which usually peaks during the IPL aided by fantasy sports, is dominated by few operators, with Dream11, MPL and Games24x7 controlling over 95 per cent of the market. All three are unicorns as per their latest valuation. There are over 950 small platforms in India that offer esports, casual games and card games. The gaming industry, directly and indirectly, employs lakhs of people in the sector. The increased GST is expected to hit the revenues of the nascent industry.
Earlier in October 2021, the GST Secretariat had asked the GST Council to provide clarity on the GST rate and the applicability of the levy on the services related to online gaming, casinos, and horse racing. This followed a directive dated September 29 from the Punjab Haryana High Court (PHHC) on the matter. The PHHC had directed the GST department to take no coercive action on an online gaming company against the demand notices until the GOM constituted to examine the issue to provide clarity.
Earlier, the Group of Ministers on lottery, formed in January 2019, in its report mentioned that it received miscellaneous representations similar to a lottery. It recommended that the rate and valuation issues of casinos, horse racing, online gaming and betting may be referred to the Fitment/Law Committee, and then taken to GST Council, either directly or through GoM as approved by the Union Finance Minister.
Later, the issue figured prominently in the 35th and 37th GST Council Meetings held on June 21, 2019, and September 20, 2019, respectively. In the September 2019 meeting, the Fitment Committee (a sub-committee of the council comprising officials to prepare recommendations on rate proposals) considered a proposal for reducing GST to 18 per cent from 28 per cent on wagering in horse racing, besides excluding prize money from the taxable value of horse racing but deferred the decision.