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A meeting of the Goods and Services Tax (GST) Council, chaired by Finance Minister Nirmala Sitharaman, was held via videoconferencing on August 2. The issues related to the 28 percent tax levy on online gaming, casinos and horse racing were discussed. Here are the highlights from the post-meeting press briefing, and the reaction which came from the industry players.
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The GST Council's recommendation to levy a 28 percent tax on the full face value or entry fees of online real-money gaming is expected to set the industry's growth back by "several years" and result in a significant fall in the industry's revenues, say industry stakeholders.
"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,"saidSaumyaSinghRathore, co-founder,WinZO, an online gaming platform.
"The decision of the GST Council is going to have a huge negative impact on the (online gaming) industry. While it’s slated to be reviewed 6 months after implementation, there doesn’t seem to be any indication of a rollback. It is doubtful that the amendments would pass a constitutional challenge. The effort of MeitY (Ministry of Electronics and Information Technology) to enact the IT Rules is also nullified by clarifying that any bans on online gaming in any state shall not be impacted by this incidence of GST," said Abhishek Malhotra, Managing Partner, TMT Law Practice.
"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," saidSaketPatawari, Executive Director, Indirect Tax,Nexdigm, a financing advisory firm.
"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," he added.
“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,"says All India Gaming Federation (AIGF), which represents over 120 online gaming companies.
"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," it added.
The GST Council's decision is expected to affect online gaming -- both RMG (real-money gaming) and non RMG's user base and overall gaming experience,GamerjiCEO Soham Thacker said."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," he added.
During the post-GST Council meeting press conference, Revenue Secretary Sanjay Malhotra clarified that taxing online gaming will not result in legalising it where it is banned."Betting is already liable to GST today andit does not make it legal...Betting andgambling are illegal andliable to tax. Taxing online gaming will not result in legalising online games in those states which have banned them," he said.
According to Sudipta Bhattacharjee, Partner, Khaitan & Co, many smaller players in the online gaming segment may be "very badly hit" due to the higher GST levy, that is likely to come into force from October 1.
"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,"Bhattacharjee said.
The new tax framework, while clarifying and resolving uncertainty, will lead to a "very burdensome 350 percentincrease in GST and set the Indian online gaming industry back several years", said Federation of Indian Fantasy Sports and E-Gaming Federation (FIFS& EGF), which represent 50 Indian online gaming companies.However, it will allow gaming companies a fighting chance to innovate and rebuild the foundation of gaming in India, it added. The industry body also noted thatit appreciates the government for addressing the industry’s concerns on theissue of repeat taxation.
The revenue secretary said that a monitoring cell under Directorate General of GST Intelligence(DGGI)is being set up to monitor offshore gaming companies if they are operating without paying tax.
The press briefing has concluded.
If the review after six months of 28 percent GST on casinos, online gaming requires some change in the tax rate or anything, the governmentwill be able to do it via anotificationand will not need the law to be amended again, Revenue Secretary said.
"We will introduce a specific provision in the law requiring that registration will be needed for off-shore online gaming. It will be a simple process,"Revenue Secretary Sanjay Malhotra said.
