17th December might be D-Day for gaming industry, GST Council to decide on industry’s fate

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After months of dithering, the central government has finally convened the 48th meeting of the GST Council on 17th December, 2022. The meeting to be held via video-conferencing will primarily discuss two separate reports prepared by the Group of Ministers (GoM): the first one on GST Appellate Tribunals and the second one on Online Gaming, Casinos and Race Courses.

The GoM to examine the valuation mechanism and tax rate for online gaming, casinos and race courses with former Gujarat Deputy Chief Minister Nitin Patel as its convenor and six other members was originally constituted in May 2021 and mandated to submit its report to the GST Council within six months. The GoM however was inactive for over a year and underwent several changes in its composition with Meghalaya Chief Minister Conrad K. Sangma later being appointed its convenor along with representatives of seven other states such as Goa, Uttar Pradesh, West Bengal, Tamil Nadu, Telangana, Maharashtra and Gujarat as its members.

Since May 2022, the GoM has had more than half a dozen rounds of meetings and consultations with the industry but failed to come to a conclusion. In its report to the GST Council in June 2022, the Sangma-led committee recommended 28% GST on the face value of every bet in case of online gaming (including games of skill and chance) and horse racing and a 28% tax on the initial entry fees or purchase of chips for casinos. However, the GST Council asked the GoM to reconsider the proposal as the state of Goa and its representative in the apex GST body, Mauvin Godinho expressed reservations regarding the adverse impact of the decision on the tourism industry in Goa.

In July 2022, over a two-day period the GoM met representatives from the race course, casino and online gaming industry in Bangalore and Goa for extensive deliberations and understanding their concerns. However, in the absence of any consensus, the group of ministers could not arrive at a final conclusion in subsequent round of meetings.

In a bid to arrive at a consensus, Sangma convened another virtual meeting of the GoM on 22nd November, 2022 with all eight member states. While reportedly, there was a consensus to levy 28% GST on all kinds of gaming without making a distinction between games of skill and chance and the majority felt that the tax should be levied on the commission or platform fee (Gross Gaming Revenue) and not the entire contest entry fee or face value of bet, three members are said to have had a differing view and asked for tax to be levied on the entire bet amount.

In the absence of a consensus despite a year and a half of deliberations and several rounds of meetings and study tours at taxpayers’ expense, the GoM finally decided to give its recommendation of 28% GST but with no conclusive view on valuation mechanism to the GST Council for arriving at a final decision in its 17th December meeting.

The GoM report expected to be handed over to Union Finance Minister Nirmala Sitharaman later this week will contain views of all eight members on the proposed valuation mechanism.

After months of uncertainty and dithering by the GST Council, it is expected that a final decision on both the rate and valuation mechanism for all 3 sub-sectors of the gaming industry will be arrived at in the 48th GST Council meeting on 17th December. It remains to be seen whether the council accedes to the industry’s request of levying tax only on the GGR or opts for the seemingly unworkable proposal of taxing the entire bet amount or contest entry fee. If the apex GST body opts for the latter, it is bound to leave the sector in a disarray and invite a flurry of legal challenges and other complications.

Given the preponderance of the center’s voice in the GST Council, the industry’s fate is largely in the Union Finance Ministry’s hands. While which way the mandarins at North Block will tilt in the council is not fully known, it will not be an exaggeration to state that 17th December could turn out to be a make-or-break day for the gaming industry.