Last Updated on July 17, 2024 by Kanakkupillai
The Goods and Services Tax or GST Council charged an empowered group of ministers referred to as GoM with investigating how to tax online casinos, gambling, and horse racing. Still, they haven’t yet agreed on placing a 28% duty on total or gross gaming revenue, also known as GGR earned. Even though the Goods and Services Tax was supposed to be submitted by Wednesday, the committee may need one or two weeks to complete it and submit it in a fully explained format.
Conrad Sangma, the chief minister of Meghalaya, chaired a team that met at the end of July this year to examine issues facing the gaming business. The panel decided to charge gross gaming revenue rather than the net amount derived after deducting prize money from the GGR. Before paying out prizes to victors or the winners, casinos and online gaming businesses gather their gross gaming revenue or the GGR.
The GoM discussed a 28% GST on the whole face value or bet amount in online gaming at the most recent meeting held by the council. However, there are certain complex tax treatment issues, particularly in the case of casinos, and they will need further consideration, according to a panel member, to clarify the whole process.
In addition, the panel was still reviewing all submissions; therefore, the report was not yet final. Next week is probably when the group meets.
According to sources of experts and other interested parties, it was noted that the panelists also addressed whether to use distinct standards or techniques, given that online gambling and casinos operate using different theoretical foundations, which is a valid argument. In its first report, the GoM recommended that internet gambling be taxed at a flat rate of 28% on the total amount paid to the winners, without distinguishing between skill- and chance-based games.
It was argued that eliminating the prize pay-outs from the value of bets would essentially exclude actionable claims from the value of supply, contradicting the exact legislative goal of including them under the Goods and Services Tax scope. If only the platform charge is subject to tax, only the service portion of the supply will be subject to tax.
Actionable claim supply will not be taxed. Provided that online gambling and casinos operate on fundamentally distinct principles, the assessment of services must be realistic. An online gambling platform’s revenue serves as the service element, and any additional taxes will be subject to judicial review. As the player keeps adding to or deducting from the total initial buyout of chips, tax could be assessed in the case of casinos on a completely different principle, according to Advocate, who is representing casinos and online gaming companies in several writ petitions under GST and former service tax.
According to the information obtained, the panel thought about the effects of the earlier suggestion to tax based on face value and gross revenue. According to estimates made by the industry, there would be significant financial consequences if GGR were subject to GST. When internet gambling or casinos are taxed at GGR, the tax disparity between these activities and the lottery, which is taxed at face value, is greatly distorted.
The GoM had previously advised applying the highest GST rate of 28% to the entire face value of any chips or coins a player bought from a casino. The chips can be used to purchase goods like meals and drinks by the players. The state of Goa opposed the proposal, though, and the GST Council requested that the issue be brought up in the June meeting as a result.
The Goa government has once stated that Sikkim and the western state are the only ones affected by the casino issue. The panel should, it was suggested, consider the worry that it would affect Goa’s economy because it has wider consequences. Additionally, it was believed that casinos should be included in the GST on the face value that is applied to lotteries, online gambling, and horse racing. When casinos are taxed equally across India, Goa does not suffer as much as other states.
Nirmala Sitharaman, the finance minister, stated to the media on June 29, 2022 that the Goa government had requested an exception for its casinos when presenting its case. The GST Council will discuss the GoM’s final report at its upcoming meeting, which is scheduled for September 2022.
Conclusion
As a brand committed to providing expert business and taxation services, Kanakkupillai acknowledges the potential impact of this decision on the online gaming sector and its stakeholders. The higher tax rate may increase the financial burden on gaming companies, potentially affecting their profitability and pricing structures. Kanakkupillai encourages policymakers to consider the industry’s long-term sustainability while implementing tax policies that promote fairness and growth.
