GST Council unlikely to change prospective tax rate for online gaming industry

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As the government announces the meeting of the GST Council, sources suggest that online gaming companies are unlikely to see any relief. Despite continuous advocacy for a review, the Council seems to uphold the current 28% GST on actionable claims, implemented on October 1, 2023.

As reported by CNBC TV18, sources indicate that the Council is expected to maintain its stance, with a source stating, “The council is likely to have reservations on any review and will continue with the ongoing policy of 28% GST on actionable claims.” This decision comes amidst reports of an increase in tax collections from the online gaming sector, which have surged by 5-6 times, signaling growth.

This increase in revenue challenges the arguments presented by the online gaming, casino, and racecourse sectors. Abhishek Jain, Indirect Tax Head & Partner at KPMG, noted, “This meeting is expected to address a considerable number of issues. Multiple clarifications are being looked after to include taxability for the online gaming sector before October.”

Rajat Bose, Partner at Shardul Amarchand Mangaldas & Co., echoed similar sentiments, stating, “The upcoming GST council meeting, being the first of the new government, has a full plate of agenda items on its hands. There is a need to address key industry issues like the taxation of online gaming and the promised review of the valuation rules introduced in October 2023.”

Roland Landers, CEO of the All India Gaming Federation (AIGF), expressed the industry’s concerns: “Based on the decision of the GST Council, last year there was a change in the GST regime for online gaming. While previously the online gaming companies paid 18% GST on their gross gaming revenue (GGR), effective October 1, 2023, this was increased to 28% and instead of GGR, the GST is now charged on the deposit made by the user in their wallet. This has effectively increased the GST burden on the companies by almost 400% and has substantially impacted their revenue, which has crashed by almost 50% on average.”

Landers emphasized the need for the promised review, highlighting the critical impact of retrospective GST taxation notices issued to gaming companies, amounting to over 1 lakh crore. “We hope that the Council takes cognizance of the same and provides relief to the industry. Since the tax demand is substantially more than the revenue of the company, in some cases 5-6x the revenue, if pursued it will lead to the closure of the entire pay-to-play online gaming industry, which contributes over 70% of the online gaming revenue in the country. We will be submitting our detailed representation to the GST Council, seeking a review,” Landers added.