The Goods and Services Tax (GST) Council, after a little reconsideration of technicalities, has announced its decision to impose a 28% tax on the full face value of bets placed on online gaming, casino, and horse racing in India.
This decision is significant in a country where online gaming and gambling in particular have seen an unprecedented rise in recent years. The impact of this tax, both on the industry and consumers, requires immediate attention and analysis.
This article seeks to elucidate the details of this new tax and its implications.
Relevant read: An Insight Into How India Taxes Online Gambling
The Big Decision by the GST Council
In a meeting chaired by the Union Finance Minister Nirmala Sitharaman on August 2, 2023, the GST Council decided to stick to its earlier decision of imposing a 28% levy on the stated areas.
Though dissent from Sikkim and Goa over the modalities of the tax for casino users was noted, the Centre is keen on implementing this decision from October 1, 2023.
The Tamil Nadu Finance Minister expressed concerns over the tax’s alignment with the state-wide ban on online gaming, which Ms Sitharaman assured would be addressed. The solution would be to not impose the tax where a ban is in place.
Details of the Tax
To explain the revised GST in simple terms, if a person enters a casino by buying chips worth ₹1,000, the tax will not be levied on Gross Gaming Revenue (GGR), which is a part of ₹1,000. Instead, it will be imposed on the whole ₹1,000.
Now, the casino takes a portion of the ₹1,000 to manage the premises and equipment. This is known as its GGR. The rest of the funds are sent into the prize pool from which they pay out winners.
Let’s say the GGR of a particular casino is ₹10. According to the earlier 18% GST, the casino would have to pay ₹1.8 (on ₹10) in taxes. But, with the new tax framework, the casino will now have to pay ₹280 (on ₹1,000) instead of ₹1.8.
This means the casino will have less money for managing their premises and equipment, and even for the prize pool. Please note that at this point, we are not considering the 30% TDS (Tax Deducted at Source), which the casino is supposed to deduct from the player’s winnings.
Now, let’s say a player happens to win ₹500 off the ₹1,000 chips he bought. Under the earlier taxation framework, the casino would be left with a total of ₹488.2 in its prize pool. But, with the new taxation framework, this amount would be reduced to ₹210.
We’ve put the calculations in a table format to help you understand better:
|GST||18% of ₹10 = ₹1.8||28% of ₹1,000 = ₹280|
|Funds sent to the prize pool||₹1,000 – ₹10 – ₹1.8 = ₹988.2||₹1,000 – ₹10 – ₹280 = ₹710|
|Funds left in the prize pool||₹988.2 – ₹500 = ₹488.2||₹710 – ₹500 = ₹210|
The Federation of Indian Fantasy Sports (FIFS) and the Esports Federation of India (EGF) have welcomed this clarification in a joint statement.’ According to them, the new tax framework will provide a ‘fighting chance to innovate and rebuild.’
However, they have also expressed concerns over the tax leading to a 350% increase in GST, setting the Indian online gaming industry back several years, despite clarifying and resolving the uncertainty around games of skill and chance.
The online gaming industry in India, too, is anxious about what they have termed a ‘death knell’ for the sector, as the decision would impact investments and employment, especially in the sunrise sector of online casinos, which is gradually booming in the country.
Ashneer Grover, former co-founder and managing director BharatPe has tweeted on X:
States like Goa and Sikkim where land-based casinos are legal, have shown dissent, requesting that the 28% levy on casino bets be applicable on the gross gaming revenue and not the entire face value, given their smaller scale of business.
Accordingly, the Council has agreed to review the implementation six months after its commencement. Revenue Secretary Sanjay Malhotra stated that the scope of the review would likely be confined to issues about valuation and tax rates, with the necessary tweaks being made through notifications and rules.
Delhi Finance Minister Manish Sisodia, on the other hand, is against the tax on online gaming – an industry pegged at about ₹25,000 crore.
It’s good to remember that betting, gambling and lottery in India are already considered actionable activities as per the GST law. The Revenue Department, believes online gaming, horse racing and land-based casinos are no different in nature and hence, should be charged under the GST law.
The High Court of Karnataka has chosen to not uphold this stand, rejecting a massive tax demand of ₹21,000 crore against a Bengaluru-based online skill-based gaming company that specializes in card games, fantasy games, arcade games, and more.
Impact on Players
As already mentioned, the old GST rate of 18% was levied on the Gross Gaming Revenue of the gaming business. Along with it, a TDS of 30% was imposed on net winnings.
However, now the new tax of 28% would be levied on the total game value, which means players have to pay the 28% on the amount they bet, or with which they buy chips. On top of that, they will also have to pay the platform fee as well as the 30% TDS on net winnings.
This basically means, players will have less money to bet with. If we consider the aforementioned example, with a platform fee of ₹10 and 18% GST, the player had ₹988.2 to bet with. But with the same platform fee and 28% GST, the player would have ₹710 to bet with.
All this will eventually create a domino effect. An increased tax means the player will earn lesser. No business is keen on cutting its profits so if a higher tax is implemented on them, this will be felt by the players, too, mostly in the form of a raised platform fee, which means even lesser money to bet with.
Eventually, there would be game abandonment because the potential revenue is no longer appealing and the cost of playing comparatively higher. This would have a direct effect on the revenue earned by the gaming businesses and eventually the tax collected by the government.
However, one way that online gaming sites could try to make up for the loss would be by raising the price of in-game purchases. Horse racing would see a similar fate in the form of increased ticket prices and bet values.
The same would be true for land-based casinos in India. They would increase the entry fee and lower the RTP on their slot machines so players win less in the long run. Complimentary services such as free drinks or snacks might be removed.
Online gambling sites that are currently running legitly in India would take a similar route. They would cut back on casino bonuses or make them less advantageous for players, with harsher wagering requirements and other terms.
Eventually, players would seek international online casinos and gaming platforms that do not come under the purview of India’s GST. In short, the new tax framework could easily backfire and prove to be disadvantageous for businesses as they grapple to make profits and even the government in the form of loss of revenue.
Ankur Gupta, Practice Leader – Indirect Tax at SW India has pointed out how most countries tax online gaming more or less at par with the earlier 18% rate. Hence, the new rate might be disadvantageous to India from a global standpoint.
Implementation and Legal Challenges
The implementation of the new tax will require amendments to the central GST law, as well as state GST laws. Ms Sitharaman expressed hope for a start date of October 1, 2023. The changes will not be retrospective but are seen more as a clarification regarding what’s taxable under the GST law.
It is to be noted that the GST Council in its 51st meeting had also recommended making suppliers located abroad liable to pay GST on the supply of online money gaming to a person in India.
The Council proposed mandatory registration for such overseas suppliers within India and blocking of their access to the public upon failure to comply with the requirements of registration and tax payment.
This decision by the GST Council is sure to have wide-reaching implications for the online gaming industry in India, an area closely related to the budding gambling industry in the country that is watched by us at GamblingBaba.
In its essence, it removes the distinction between games of skill and games of chance, bringing everything under the purview of the new tax framework. Also, the 28% GST will be on top of the 30% TDS that is already in place. Therefore, the sector will now be taxed at over 50%!
From what it looks like, it is a repeat of how the cryptocurrency sector was taxed into oblivion only two years ago. While the new tax regulation brings higher revenue for the government, it also raises concerns for the gambling industry's growth and innovation.
The manner in which this levy is implemented and its effects on various businesses will be crucial in determining the future landscape of online gambling in the country. For now, it is a major setback to the industry that is as well as the industry that could have been.
Of course, the government disagrees saying the tax isn’t intended to kill the industry. But the question is, is it morally right to tax online gaming, casino and horse racing at par with essential commodities in a country like India?
No wonder Roland Landers, the CEO of The All India Gaming Federation has called the center’s decision ‘unconstitutional, irrational, and egregious.’ According to him, it has the potential to wipe out the entire Indian gaming industry and lead to unemployment.
The negative implications have already started showing in the form of falling shares of various Indian online gaming firms, including Delta Corp, the face behind the Deltin group of hotels and casinos in Goa and Sikkim.
However, the government's stance is unequivocal: this mechanism aims to dissuade gambling, particularly among young individuals, thus justifying the implementation of the levy. This is where we can’t help but quote Ashneer Grover once again.