In a major blow to the RMG industry, the GST Council held its virtual meeting on Wednesday (August 2) and decided to levy 28% of GST on online gaming and casinos. However, the council clarified that the 28% GST will be levied on initial deposits, not on each contest entry. This means that the tax will be levied on contest entry amount, not on every game or competition that a player decides to play.
Chaired by the Union Finance Minister Nirmala Sitharaman, the meeting was attended by state finance ministers and Union Minister of State (MoS). The decision is scheduled to be implemented from October 1, 2023. The Council will review the implementation of 28% GST after over six months.
Amendments to the CGST law are scheduled to be submitted during the Parliament’s monsoon session. This historic judgement drew strong reactions from industry players. When asked about taxing GGR, the Union Finance Minister stated that it will earn a lesser net tax than what is generated from essential goods. As a result, the tax levy criteria was decided to be on full face value.
During the council’s historic meeting, Goa and Sikkim expressed their concerns about the casino assessment process. While both states supported the 28% GST rate, they preferred that it to be levied on GGR (gross gaming revenue), not on the full face value. Delhi, on the other hand, demanded a thorough re-look and the matter go back to the GoM for additional consideration.
Meanwhile, all the other states supported the decision and wanted to implement it as quickly as possible. As a result, the Council resolved to implement the proposed amendments starting from October 1, 2023. The GST Council will review the situation six months after implementation.
However, the implementation date may vary as all the states will have to amend their GST Act.
Another significant news was that the registration of offshore gaming companies will be required, with a particular provision in the legislation to that effect. The Directorate General of GST Intelligence (DGGI) will keep a watch on these companies to see if they are functioning without paying taxes.
The gaming industry stakeholders have been urging the government to reconsider the proposal as it will result in the shutdown of several gaming startups, leading to job losses and users shifting to illegal offshore gambling platforms. Moreover, it will hamper the inflow of FDI into the gaming sector.
The decision of the 28% GST has sparked strong reactions from the gaming stakeholders. Here is what some of the stakeholders had to say, reacting to the hard-hitting decision of the Council:
“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. 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.” – All India Gaming Federation (AIGF)
“FIFS & EGF, which represent 50 Indian online gaming companies, appreciate the Government addressing the industry’s concerns on the issue of repeat taxation. The new tax framework, while clarifying and resolving uncertainty, will lead to a very burdensome 350% increase in GST and set the Indian online gaming industry back several years. However, it will allow gaming companies a fighting chance to innovate and rebuild the foundation of gaming in India.” – Federation of Indian Fantasy Sports and E-Gaming Federation
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. – Saumya Singh Rathore, co-founder, WinZO
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. – Soham Thacker, CEO, Gamerji
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