GoM on online gaming, casinos: No consensus yet on 28% GST on gross revenue

An empowered group of ministers (GoM) tasked by the Goods and Services Tax (GST) Council to look into taxation of online gaming, races and casinos is yet to reach a consensus about imposing 28 per cent levy on gross gaming revenue (GGR). The group may take one or two weeks to finalise the report, although it was expected to be submitted by Wednesday.

The panel headed by Meghalaya Chief Minister Conrad Sangma met in July-end to address concerns of the gaming industry and agreed to impose levy not on the net amount (after removal of prize money) but gross gaming revenue (GGR).

GGR is the total amount collected by casinos and online gaming companies before shelling out the money to the winners.

“In the last meeting, the GoM deliberated on 28 per cent GST on the entire face value or bet amount in online gaming. However, there are some contentious issues with respect to tax treatment, particularly in case of casinos, and will require further deliberation,” said a panel member.

He added that report was not yet finalised, as the panel was examining all inputs. The group is likely to meet next week.

Sources said the panel members also discussed whether to have different approaches or yardsticks, given that casinos and online gaming work on different fundamentals.

The GoM, in its first report, recommended that online gaming activities should be taxed at flat 28 per cent on the full value of consideration, without making any distinction between games of skill and chance.

It was argued that removing the prize payouts from the value of bets would result in effectively scrapping actionable claims from the value of supply, defeating the very legislative intent of bringing them within the purview of GST. If the tax has to be levied only on the platform fee, it will amount to taxing only the service component of the supply. Supply of actionable claims will remain untaxed.

“The consideration given to services needs to be pragmatic, as casinos and online gaming work on completely different fundamentals. The revenue of an online gaming platform represents the element of service and any tax beyond that value will be subject to judicial review. In case of casinos, tax could be levied on a completely different principle as the player keeps adding to or subtracting from the total initial buyout of chips,” said Abhishek Rastogi, who is arguing several writ petitions under GST and service tax for casinos and online gaming companies.

The panel is learnt to have considered the implications of the earlier proposal of taxing on face value and on gross revenue. It was argued that financial implications of subjecting GST on GGR (according to industry estimates) are substantial. Taxation of online gaming or casinos at GGR creates a huge distortion in terms of tax differential between lottery (face value taxation) and these activities.

In case of casinos, the GoM had earlier recommended charging the highest GST rate of 28 per cent on the full face value of chips or coins purchased by a player. The chips may be used for buying items such as food and beverages as well.

However, Goa objected to the proposal, following which the GST Council asked for the matter to be raised in the June meeting.

The Goa government has reiterated that the casino issue is specific to the western state and Sikkim. However, since it has wider implications, the panel should consider the fear that it may impact Goa’s economy, it argued.

It was also felt that if lottery, online gaming and horse racing attracted GST on the face value, the same should be extended to casinos. If casinos are uniformly taxed across India, Goa does not get any disadvantage vis-à-vis other states.

However, Finance Minister Nirmala Sitharaman told the media on June 29 that the Goa government, while presenting its case, had sought an exception for its casinos. The GST Council, at its next meeting due in September, will take up the final report of the GoM.

The ministerial panel also deliberated on the suggestion of developing a methodology that would bridge the seemingly irreconcilable conflicts between maintaining consistency with the Supreme Court’s ruling on lotteries; holding firm on its the principle of not making distinction of chance and skill while keeping GST revenues buoyant; and giving the industry relief by taxing only GGR, thereby improving the attractiveness of formal channels of betting and enabling volume growth.

Taxing task

• Goa sought review on first GoM report
• GoM report had suggested flat 28% 
• GST for online gaming, racing and casinos involving betting and gambling 
• Goa not in favour of taxing on full face value of chips bought at casinos
• GST Council in June meeting asked panel to revisit recommendations
• GoM met in July end, agrees to tax on GGR
• But issue of tax treatment for casinos remains inconclusive
• Report to be finalised in 1-2 weeks
• GST Council expected to meet in Sept, would take up the final report