GST Council approves enabling amendment to quash retrospective tax demands

Real-money gaming sector currently forms the bulk of revenues of India's overall gaming industry

The Goods and Services Tax (GST) Council on June 22 recommended an amendment to the Central Goods and Services Tax (CGST) Act, 2017, that would empower the government to discuss and overrule any retrospective GST demand sent by tax authorities.

In the 53rd GST Council meet, the Council recommended inserting Section 11A to the GST Act to empower the government to regularise instances of non-levy or short-levy of GST, based on the Council's recommendations, when such tax was not being paid due to common trade practices.

The amendment, once passed by the parliament and state legislatures, is expected to pave the way towards providing relief to India's burgeoning real-money gaming (RMG) companies who have received GST notices for the period between July 2017 and March 2023.

The amendment however applies to all sectors, not just real-money gaming sector.

Retrospective tax challenge for RMG firms

In the case of real-money gaming, where the transfer of money is involved, companies in the segment during 2017-2023 paid 18 percent GST on platform fees for skill-based games, while betting and gambling fell under the 28 percent slab.

The GST authorities sent Rs 1.12 lakh crore worth of tax notices in 2022-23, and in the first seven months of 2023-24, to real-money gaming companies invoking the 28 percent rate in the case of gaming platforms, regardless of whether the games were of skill, or of chance (like gambling).

This includes tax notices to skill-based gaming firms such as Dream Sports, Gameskraft, Games24x7, Delta Corp's Deltatech Gaming, and Head Digital Works (A23).

"Since the entire online gaming industry was paying tax only on Gross Gaming Revenue (GGR) or margins until October 1, 2023 and it was a common trade practice, the amendment once passed by parliament and state legislatures, will potentially be a first step to enable the government to withdraw retrospective showcause notices issued to over 70 online gaming companies based on the erroneous computation of face value of each bet instead of the common trade practice of GGR," said Jay Sayta, a technology and gaming lawyer.

India's real-money gaming sector, which currently forms the bulk of revenues of the country's overall gaming industry, touched $2 billion (around 17,000 crore) in revenue in the financial year 2023 (FY23), according to a report from early-stage venture capital fund Lumikai.

The Supreme Court is likely to hear in July a batch of petitions challenging the demand notices asking real-money gaming companies to pay 28 percent GST on the full face value of bets. A batch of 30 petitions by online real-money gaming companies challenging retrospective GST notices is currently pending before the apex court.

No review of 28% GST levy

The much-anticipated review of the 28 percent tax levy however did not happen in the GST meeting on June 22.

"It (Online gaming) was not on the agenda, it didn't come up for discussion, it wasn't taken up," said finance minister Nirmala Sitharaman during a press briefing after the council meeting.

In April, Moneycontrol had reported that the sector might not get any prospective relief after the new tax regime generated a tax windfall for the government

GST collections from the real-money gaming sector touched Rs 3,470 crore in the October-December 2023 quarter, up 5.7x from Rs 605 crore collected in the previous quarter, a government official told Moneycontrol in April.

In August 2023, the GST Council decided to levy 28 percent GST on the full face value of player deposits, irrespective of whether it is a game of skill or chance. However, it had agreed to review this decision six months after its implementation in October 2023.

Prior to this period, online gaming platforms paid 18 percent GST on the platform fees, also known as Gross Gaming Revenue (GGR). Platform fee is the commission levied by these operators from players for allowing them to participate in a game on their platform.

These rates do not apply to free-to-play and paid video games in the country, since they don't involve a staking or a wagering element. They are taxed at 18 percent GST rate which is already included in the app sales on Google Play Store and Apple App Store.