Online gaming industry reacts to GST Council’s decision to levy 28% tax on initial deposits

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The 51st GST Council meeting clarified that the 28% tax on online gaming and casinos at full face value will be levied on initial deposits. The decision has provided little bit of relief to the industry as imposition of tax on each contest entry amount would have increased the tax burden massively.

The decision was not unanimous as Delhi, Goa and Sikkim asked for a reconsideration. On the other hand, other states were ready to implement the proposed amendments as soon as possible. The Council is expecting that the law comes into force from October 1, but the date can vary as the states would have to bring amendments to their state GST law, too.

Notably, the Council will review the situation six months after the implementation of the decision. It gives some more hope for the industry for a potential favourable change later, no matter how small.

Here’s what industry stakeholders have to say about the GST Council’s decision

We believe the decision by the GST Council of valuation on deposits will severely impact the online gaming sector and result in a situation where a majority of players, including the MSMEs will no longer be able to survive in the face of the increased tax liability of 400-500 percent.

Only established and well entrenched skill gaming companies may be able to scrape through this change by using their existing capital reserves to counter the effects of substantially increased tax liability. However, even their revenues and valuations will significantly fall.

– All India Gaming Federation (AIGF)

FIFS & EGF, which represent 50 Indian online gaming companies, appreciate the Government addressing the industry’s concerns on the issue of repeat taxation. The new tax framework, while clarifying and resolving uncertainty, will lead to a very burdensome 350% increase in GST and set the Indian online gaming industry back several years. However, it will allow gaming companies a fighting chance to innovate and rebuild the foundation of gaming in India.

Federation of Indian Fantasy Sports and E-Gaming Federation

The 51st GST Council meeting indicated that the contentious issue of taxing online gaming and casinos still has divergent views among states. Although it was clarified that 28% GST will be applicable at the stage of purchase of chips or deposit into the online gaming wallet and not on winnings reinvested to enter future games or contests, one issue that the council did not clarify is whether chips or deposits that are returned by the customer or withdrawn would be treated as refund of goods and eligible for offset or credit of GST.

Further, the Revenue Secretary has also indicated that the department intends to pursue claims on retrospective dues and has filed an appeal in the Supreme Court against the Karnataka High Court order that quashed the Rs. 21,000 crore GST notice against Gameskraft. If the department is amending the law on a prospective basis, it is entirely irrational and illogical to pursue claims for retrospective dues for which there is currently no legal provision.

Finally, the fact that there was no complete consensus or unanimity within the council and that the possibility of review of the decision after six months of implementation has been left open is a sign of the complexities involved in the issue. Hopefully, there will be a complete review of the decision in the second half of 2024 and the industry’s demands to tax on Gross Gaming Revenue (GGR) would be positively considered in the future.

Jay Sayta, Technology & Gaming Lawyer

Taxing GST on deposits rather than the technology platform commission charged by the companies will make the unit economics unviable, wiping out 80 percent of the industry, with fatality concentrated in MSMEs and startups that house new age business models. This increase of 400 percent will solely encourage the rise of monopolistic play. Reasonable taxation can protect our over 500 million internet consumers from illegal offshore products.

– Saumya Singh Rathore, co-founder, WinZO

While we are going to obey the law of the land, we feel that focusing on entering new international markets will serve as a good strategy to manage the impact of the GST levy.

Soham Thacker, CEO, Gamerji

Even shifting of base outside India would not help to escape the levy, as the GST Council has decided to bring in GST registration requirements for such offshore companies for the purpose of discharging GST in India. It is evident that the government is firm on its position that online gaming, horse racing, and casinos would be treated at par with betting and gambling for the purposes of GST.

– Saket Patawari, Executive Director, Indirect Tax, Nexdigm

The GST Council clarified that vis a vis online real money games (‘fantasy’ games as well as other real money games) the GST at 28% will be applicable on the actual cash/equivalent deposits made by players on an online gaming platform to commence gameplay and not on the winning amounts being redeployed by players for further gameplays.

While this will certainly afford some amount of relief to the online real money gaming sector, many smaller start-ups in this segment may still get very badly hit once this higher GST comes into force – some of them possibly even before the expiry of the review period of 6 months as mentioned in the press briefing.

– Sudipta Bhattacharjee, Partner, Khaitan & Co