The hullabaloo about the 50th GST Council’s recommendation to impose GST at 28 percent on the face value, of chips purchased in casinos, of bets placed in the case of horse racing and online gaming, does not seem to die soon. The All-India Gaming Federation (AIGF), the apex industry body for 'online skill gaming' in India as it claims on its website, has been at the forefront of the clamour for a reconsideration of the decision.
AIGF has stated that the decision will cause ‘significant distress', have ‘devastating implications’, and is ‘unviable’. The Federation has represented that it is ‘willing’ to pay 28 percent GST on gross gaming revenue (GGR) /platform fee, and the industry will have no choice but to pass the GST burden to the ‘400 million Indians’ who ‘is already required to pay 30 percent income tax on winnings’ and will not be able to bear such a large increase in cost and will shift to black market operators.
The Federation of Indian Fantasy Sports (FIFS), another industry body, has also expressed similar outrage.
AIGF is playing to the gallery here. 400 million Indians may indeed be gamers, but a much smaller number will be the actual wagers. And, income tax is payable on income--be it from gaming or any other activity.
Rajeev Chandrasekhar, the Minister of State for Electronics & Information Technology, has gone on record to state that he will ‘request the GST Council for consideration on the new regulatory framework’.
Unfortunately, in the noise and din, the facts of the matter at hand have been lost sight off.
Schedule III of the CGST Act
The CGST Act unambiguously states that GST is levied on goods which includes actionable claims. Entry 6 of Schedule III of the CGST Act specifies that lottery, betting, and gambling are taxable as actionable claims. There was/is no issue regarding lottery, betting, and gambling- these activities paid/pay 28 percent on the full value of goods. Schedule III makes no specific mention of casinos, race clubs or online gaming.
The practice in the country as regards Turf clubs was that they were paying 28 percent on the face value of the bet/amount paid into the totalizator. Casinos were also paying 28 percent--but on gross gaming revenue (GGR), the net value available. Online gaming companies were paying 18 percent on GGR.
The tax department’s stand as regards online gaming has been that 28 percent was always payable on the face value of the bet. This led to disputes, cases, show cause notices and court cases. Distinctions were drawn between games of skill or chance, appeals filed and pending are various levels.in other words there was lack of clarity and confusion prevailed. Obviously, there were substantial revenue implications--the gaming market being estimated to exceed USD 8.6 billion as per a study of Deloitte carried out at the behest of FIFS.
Clarity thus was needed. The Group of Ministers (GoM), constituted as early as in 2020, had recommended a flat 28 percent on casinos, race courses, and online gaming and on the full value. Since concerns were raised, the GoM was mandated to relook at the issue. The year-long confabulations led to more confusion. So much so, the GoM which earlier had given a categorical recommendation, now opined that in the absence of any consensus, the GST Council take a decision. We must view the 50th GST Council’s recommendation in this background.
Thus, the Council has in effect endorsed the stand of the Central Board of Indirect Taxes & Customs (CBIC) that there is no distinction between games of skill or chance, and that these activities were always taxable at 28 percent and on the full value. What has also been said is that what the GST council is now recommending is clarificatory in nature and the levy is due to be paid from 2017. What this means is that the online gaming industry is expected to collect for the period from 2017 and the amount estimated to be in the region Rs 20,000 crore in taxes. This is going to be challenging.
Having said that, the Council has also recommended amendments to the law to include the very same activities which were always held to be within the ambit of the GST law. It would be interesting to see if the amendments to include the activities of online gaming and horse racing within Schedule III as actionable claims would mean that such amendments which are normally prospective will be retrospective to give effect to the Council’s recommendation.
The dust has not settled down on this. The industry awaits clarificatory circulars from the CBIC. There are several nuances. The AIGF has for instance now raised the issue whether the levy will be on ‘repetitive taxation’ defined as gamers using their winning money to play another game and if so, would they be taxed again. The answer is obvious. The industry is also likely to go to the Courts.
Seeking to change social behaviour
The GST Council’s recommendation/clarification fills in a critical policy gap where the lack of clarity /understanding was hurting the industry and the department alike. There has been mention that the clarification will help generate enormous revenue.
While the purpose of taxation is to raise revenue (‘the price we pay for a civilised society’) tax on online gaming should be viewed as a means of seeking to change social behaviour. There are enough anecdotal instances of gambling destroying lives and families.
The clarification, however, clearly answers one essential requirement of a good tax system --certainty. Tax administration will have to ensure that the tax is also sustainable -- thereby the base is not eroded as constantly alleged by the industry.
AIGF has stated that the decision will cause ‘significant distress', have ‘devastating implications’, and is ‘unviable’. The Federation has represented that it is ‘willing’ to pay 28 percent GST on gross gaming revenue (GGR) /platform fee, and the industry will have no choice but to pass the GST burden to the ‘400 million Indians’ who ‘is already required to pay 30 percent income tax on winnings’ and will not be able to bear such a large increase in cost and will shift to black market operators.
The Federation of Indian Fantasy Sports (FIFS), another industry body, has also expressed similar outrage.
AIGF is playing to the gallery here. 400 million Indians may indeed be gamers, but a much smaller number will be the actual wagers. And, income tax is payable on income--be it from gaming or any other activity.
Rajeev Chandrasekhar, the Minister of State for Electronics & Information Technology, has gone on record to state that he will ‘request the GST Council for consideration on the new regulatory framework’.
Unfortunately, in the noise and din, the facts of the matter at hand have been lost sight off.
Schedule III of the CGST Act
The CGST Act unambiguously states that GST is levied on goods which includes actionable claims. Entry 6 of Schedule III of the CGST Act specifies that lottery, betting, and gambling are taxable as actionable claims. There was/is no issue regarding lottery, betting, and gambling- these activities paid/pay 28 percent on the full value of goods. Schedule III makes no specific mention of casinos, race clubs or online gaming.
The practice in the country as regards Turf clubs was that they were paying 28 percent on the face value of the bet/amount paid into the totalizator. Casinos were also paying 28 percent--but on gross gaming revenue (GGR), the net value available. Online gaming companies were paying 18 percent on GGR.
The tax department’s stand as regards online gaming has been that 28 percent was always payable on the face value of the bet. This led to disputes, cases, show cause notices and court cases. Distinctions were drawn between games of skill or chance, appeals filed and pending are various levels.in other words there was lack of clarity and confusion prevailed. Obviously, there were substantial revenue implications--the gaming market being estimated to exceed USD 8.6 billion as per a study of Deloitte carried out at the behest of FIFS.
More clarity
Clarity thus was needed. The Group of Ministers (GoM), constituted as early as in 2020, had recommended a flat 28 percent on casinos, race courses, and online gaming and on the full value. Since concerns were raised, the GoM was mandated to relook at the issue. The year-long confabulations led to more confusion. So much so, the GoM which earlier had given a categorical recommendation, now opined that in the absence of any consensus, the GST Council take a decision. We must view the 50th GST Council’s recommendation in this background.
Thus, the Council has in effect endorsed the stand of the Central Board of Indirect Taxes & Customs (CBIC) that there is no distinction between games of skill or chance, and that these activities were always taxable at 28 percent and on the full value. What has also been said is that what the GST council is now recommending is clarificatory in nature and the levy is due to be paid from 2017. What this means is that the online gaming industry is expected to collect for the period from 2017 and the amount estimated to be in the region Rs 20,000 crore in taxes. This is going to be challenging.
Having said that, the Council has also recommended amendments to the law to include the very same activities which were always held to be within the ambit of the GST law. It would be interesting to see if the amendments to include the activities of online gaming and horse racing within Schedule III as actionable claims would mean that such amendments which are normally prospective will be retrospective to give effect to the Council’s recommendation.
The dust has not settled down on this. The industry awaits clarificatory circulars from the CBIC. There are several nuances. The AIGF has for instance now raised the issue whether the levy will be on ‘repetitive taxation’ defined as gamers using their winning money to play another game and if so, would they be taxed again. The answer is obvious. The industry is also likely to go to the Courts.
Seeking to change social behaviour
The GST Council’s recommendation/clarification fills in a critical policy gap where the lack of clarity /understanding was hurting the industry and the department alike. There has been mention that the clarification will help generate enormous revenue.
While the purpose of taxation is to raise revenue (‘the price we pay for a civilised society’) tax on online gaming should be viewed as a means of seeking to change social behaviour. There are enough anecdotal instances of gambling destroying lives and families.
The clarification, however, clearly answers one essential requirement of a good tax system --certainty. Tax administration will have to ensure that the tax is also sustainable -- thereby the base is not eroded as constantly alleged by the industry.
—The author, Najib Shah, is former Chairman, Central Board of Indirect Taxes & Customs. The views expressed are personal.
First Published: Jul 21, 2023 8:14 AM IST
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