Offering some relief to online gaming companies, the GST Council clarified on August 2 that the proposed 28 percent tax rate will be applicable on the actual cash or equivalent deposits made by players on an online gaming platform and not on the winning amounts being redeployed by players. The same treatment will extend to actionable claims in casinos.
The Council also agreed to review the impact of higher GST on online gaming after six months of its implementation.
Finance Minister Nirmala Sitharaman said that the enabling provision to implement the higher taxation on online gaming is likely to be taken up in the ongoing session of the Parliament while the date of implementation is expected to be October 1.
The meeting, held via video-conferencing on August 2, came less than a month after the council on July 11 decided to levy 28 percent tax on the full value of the money paid by users to online games in a uniform manner, making no distinction between games of skill and chance.
Also Read: GST Council decides to levy 28% GST on online gaming, horse racing, casinos
"When the question of when to implement it came, October 1 is when it is expected, by which time the states will also pass the amendments to their state laws," Sitharaman told reporters at a briefing at the conclusion of the GST Council's meeting on August 2.
"And because of the casinos, Goa and Sikkim kept appealing saying that they are small states and need to be given some consideration…the Council agreed today to come back after six months to review the way in which this is getting implemented. When I say six months, it's not six months from today but six months from when this gets implemented," she added.
Sitharaman said six months of implementation "hopefully will give us some inputs and also we can share our experiences to see how it is going on".
According to Sudipta Bhattacharjee, Partner at Khaitan & Co, the clarification by the GST Council on the applicability of the tax rate on the actual cash or equivalent deposits instead of the winning amounts being redeployed will "certainly afford some amount of relief" to the online real money gaming sector. However, smaller start-ups will still get "very badly hit" once this higher GST comes into force.
"The problem remains that GST, despite being a tax on supply of goods/service, is being levied on a value that is much higher than the actual revenue earned by the online gaming platforms for their supply of facilitation services to players," Bhattacharjee said.
According to L. Badri Narayanan, Executive Partner at Lakshmikumaran & Sridharan Attorneys, the same valuation mechanism for casinos and online gaming - GST being charged only on the value of coins purchased and money deposited in a wallet - is a "welcome clarification" for the industry.
The GST Council has also recommended inserting a specific provision in the Integrated GST Act, 2017 to articulate that a supplier of online gaming located outside India to a person within the country is liable to pay GST. Further, any money paid out in the form of Virtual Digital Assets will also be liable to GST rate of 28 percent.
"Acknowledging the use of Virtual Digital Assets as a legitimate mode of payment is in line with global VAT developments," Badri Narayanan said.
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