New Delhi: The Goods and Services Tax (GST) Council has agreed to tax online gaming, casinos and horse racing at 28 percent, Union Finance Minister Nirmala Sitharaman announced Tuesday — a development that is being seen as a blow to the online gaming industry.
“There will be some amendment to the GST law to include online gaming in it. And simply put, online gaming, casinos and horse racing will be taxed. They will be taxed at 28 percent and they will be taxed on their full face value,” Sitharaman said at a press conference after the 50th meeting of the GST Council — the apex decision-making body on GST comprising the Union finance minister and representatives from all states and Union Territories.
The issue, she added, has now been reviewed twice by the Group of Ministers, which was formed in October 2020.
Replying to a question on whether this move could kill the online gaming industry, Sitharaman said: “There was a detailed discussion on this. Our agenda is not to kill an industry. All sorts of businesses have to be kept alive. Casinos in Goa and Sikkim yield a lot of revenue for the two small states…It is not so much our position, every state felt it.”
The decision, she said, was made after extensive deliberations.
“When discussions on this happened, a state — I don’t want to name anyone — asked if tax on casinos, which are important for tourism revenues in some states, should be lower than the tax on food items. A discussion also took place on the moral question. No one wants to kill an industry, but they can’t be encouraged to such an extent over essential goods and services.”
She added that the tax on online gaming companies would be imposed without differentiating between skill-based and chance-based games.
The industry, however, expressed disappointment. Joy Bhattacharjya, director-general, Federation of Indian Fantasy Sports (FIFS) — India’s only fantasy sports industry body — said the move could cause irreparable damage to the gaming industry.
“We are disappointed that the GST Council and authorities have chosen to apply 28 percent GST on the total entry amount, including prize money. As pointed out by FIFS and many of its members on numerous occasions, a change in valuation to tax on the total consideration will cause irreversible damage to the industry, loss of revenue to the exchequer, and loss of employment for lakhs of skilled engineers,” he said.
The decision, he added, would also have a “chilling effect” on the $2.5 billion of Foreign Direct Investment already made and jeopardise potentially any more such investments in the sector.
“Further, this decision will shift users to illegal betting platforms, leading to user risk and loss of revenue for the government. We humbly request the GST Council and the Government of India to reconsider this decision.”
Likewise, Roland Landers, CEO at The All India Gaming Federation — the apex industry body for online skill gaming — termed the decision “unconstitutional, irrational, and egregious”. It ignores over 60 years of settled legal jurisprudence and lumps online skill gaming with gambling activities, he said.
“This decision will wipe out the entire Indian gaming industry and lead to lakhs of job losses and the only people benefitting from this will be anti-national illegal offshore platforms,” Landers said, adding that it is very unfortunate that when the government has been supporting the industry with moves such as online gaming rules and clarity on Tax Deducted at Source (TDS), such a “legally untenable decision” was taken.
The Central Board of Direct Taxes (CBDT) had issued guidelines on TDS for online gaming companies. The rules came into effect on 1 July, 2023.
“We hope that the government will reconsider this recommendation and not implement it, as it will be catastrophic for the 1 trillion dollar digit economy dream,” Landers added.
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Exceptions to private satellite services
Sitharaman also announced that the Council decided to exempt the four items, among them cancer-related drugs, medicines for rare diseases and food products for special medical purposes, from GST.
During the briefing, the minister added that rates were brought down on four items — uncooked, unfried snack pellets (from 18 percent to 5 percent), fish soluble paste (from 18 percent to 5 percent), imitation zari threads or yarn (from 12 percent to 5 percent) and LD Slag to be at par with blast furnace slag and fly ash (from 18 percent to 5 percent).
LG Slag is the solid waste produced while manufacturing steel in a basic basic oxygen furnace. Blast furnace slag is a non-metallic residue usually obtained from steel plants or from the reduction of ores in a blast furnace.
The finance minister also announced that the scope of taxation has been expanded on SUVs.
“We have given details on which vehicles will be covered. Punjab and Tamil Nadu did not want sedans to be taxed in the same way as SUVs, so we have ensured they won’t be affected,” she said, adding that any utility vehicle which is more than 4 metres in length, has an engine capacity of over 1,500 cc and has more than 170 mm of ground clearance (un-laden), will attract 22 percent compensation cess in addition to 28 percent GST.
This, however, will not apply to sedans.
On services, she said that exemption was given to satellite launch services provided by private organisations, and clarified that food and beverages in cinema halls will attract a 5 percent GST.
L.Badri Narayanan, executive partner at tax firm Lakshmikumaran & Sridharan Attorneys, called the tax on casinos, horse racing and online gaming an “unexpected development in the light of the positive steps in the TDS and self-regulatory regime”.
“After taxing 100 percent of the winning amount under the new TDS regime, to tax full value of entry fee will have a significant impact on prize pool and incentive for players,” Narayan said. “The differential treatment for games of chance like casinos and games of skill played in online gaming is arbitrary and will face legal challenges.”
He further said: “This decision will have an adverse impact on the nascent sector and future investments and will aid in the further development of grey market operators and dark web, affecting customer interest. The approach of the GST Council is a deviation from internationally accepted taxation practice.”
The name of L. Badri Narayanan, executive partner at tax firm Lakshmikumaran & Sridharan Attorneys, was misspelled in the report. That has now been corrected.
(Edited by Uttara Ramaswamy)
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