MC Explainer: How 28% GST on online gaming will work

GST on online gaming

On August 2, the Goods and Services Tax (GST) Council approved a 28 percent GST rate on online gaming, casinos, and horse racing. This move aims to bring greater transparency and accountability to the sector while ensuring fair taxation for both real-money and non-money games.

However, there are questions regarding its calculation, application to different types of games, and potential impact on the gaming industry. In this explainer, Moneycontrol delves into the details of the new GST rate, how it will be applied, and its potential impact on taxation and revenues.

How will the 28 percent GST on online gaming be calculated?

The 28 percent GST on online gaming will be calculated at the entry level of full face value.

Will there be different GST rates for real money games and non-money online games?

Non-money online games will not be under 28 percent tax category. Only online money gaming will attract tax at the rate of 28 percent as goods. Other categories of online gaming will continue to be treated as services.
The moot question is not whether a game is permissible or not, the question is as to what is the purpose of the game, whether it is a sport or an entertainment or recreation. The Council has thus very consciously said and decided that games or sports which are not played for money are going to be taxed at 18 per cent, whether they are online or offline. Those games continue to be taxed at 18 per cent when they are not played with money or stakes. For example, chess is played online or otherwise. If one pays an entry fee to it, then there is going to be an 18 per cent taxation. It is only those other games which are played for money that the taxation of 28 per cent comes in.

Will there be different GST rates on skill-based and chance-based online games?

All the games, whether based on chance or skill, whether they involve betting or not, will attract a 28 percent GST rate.

When will the 28 percent GST rate come into effect?

The GST rate of 28 percent on online games, casinos, and horse racing is likely to come into effect from October 1. The amendment to the GST Act was approved by the GST Council. It now needs to be approved by Parliament. The amendment is likely to be placed for approval before Parliament in the current monsoon session. The states’ legislative assemblies too need to pass it for the new rate to come into effect.

What will happen in the state of Tamil Nadu where online gambling is banned?

Tamil Nadu voiced apprehension on the implementation mechanism of the 28 percent rate on online gaming. However, the GST Amendment will be worded in such a way as to take into consideration the ban on online gambling in Tamil Nadu.

Is the 28 percent GST rate on online gaming finalised or is there some scope for review?

The GST Council will be reviewing the GST rate and mechanism on online gaming, casinos, horse racing after six months of implementation. Since the implementation is expected from October 1, the review will likely be due in the next financial year.

Did all the states unanimously agree to the 28 percent GST rate on face value? If not, why did the GST Council approve the 28 percent rate on face value despite dissenting voices? Will it prove to be a death knell for online gaming companies?

The 28 percent rate on online gaming was approved by consensus at the 50th GST Council meeting held on July 11. However, at the 51st meeting held virtually on August 2, some states raised concerns over levying a 28 percent rate on online gaming. Delhi wanted the 28 percent rate proposal reviewed. Goa and Sikkim said the 28 percent GST rate on face value hurts casinos. The former also appealed for a 28 percent rate on gross gaming revenue (GGR) instead of face value. However, during the discussion, the Council arrived at the conclusion that there are practical difficulties in implementing the 28 percent rate on GGR.

It was noted by the Council that if the 28 percent rate is applied to GGR on online games, net revenue will be only 11-12 percent, which would be below the revenue-neutral rate. Currently, the 18 percent rate on GGR results in net revenue of only 8-9 percent. GGR is calculated by subtracting player winnings from the total amount wagered. With the collective wisdom of the Council, it was hence decided to go ahead with the 28 percent rate on face value.

Further, states including West Bengal, Bihar, Chhattisgarh, Uttar Pradesh, Himachal Pradesh, Maharashtra, and Gujarat asked for 28 percent GST on face value at the earliest. Several ministers on the GST Council felt it had spent far too much time on the issue of taxing online gaming and wanted the decision taken on July 11 to be implemented.

If the payments are made in virtual digital currency, how will they be dealt with?

The amendment includes all transactions in online gaming made in virtual digital assets under the 28 percent tax on face value. If payments are made in virtual digital assets or winnings are given in virtual digital assets, they will still be taxed at 28 percent on face value.

If the winnings are again used for re-entry in an online game, then will it lead to repeat taxation?

All the winnings for re-entry into a game will be exempt from GST. If an individual incurs losses, then obviously there is no case for GST. In case of winnings, when there is re-entry into a game, it will not be taxed again. However, the individual will have to pay direct tax at the rate of 30 percent on the net winnings.

How will offshore gaming companies be taxed?

The government will introduce a specific provision in the GST law requiring mandatory registration for off-shore online gaming. It will be a simple process. The central government is also setting up a monitoring cell under the Directorate General of Goods and Services Tax Intelligence (DGGI) to monitor offshore gaming companies if they are operating without paying taxes. The ones that are not registered will be banned, which will be a continuous process.