Centre expects over Rs 19K cr additional revenue from e-gaming, casinos

Revenue estimates based on the turnover of the gaming industry

Despite recent relief for the online gaming industry, the Centre expects that the introduction of a 28 per cent levy on e-gaming, casinos, and racing could generate over Rs 19,000 crore for the overall goods and services tax (GST) fund in this financial year. The new rule will be introduced by October 1.

“Revenue estimates are reliant on the elasticity of demand in relation to price. These estimates are based on the total turnover of the gaming industry, which only includes payment once. Multiple games are not counted multiple times in the turnover," explained a senior government official.

On Wednesday, the all-powerful Council gave some breather to e-gaming companies, deciding to apply GST on the total bet placed at the entry level of each gaming session, but not on each round of betting on the redeployed gains.

“The Council met to clarify the tax structure and the necessary legal changes in the GST laws related to these activities. There was no discussion about reviewing the tax levy, which was already decided in the previous Council meeting. Clarification was provided on what would constitute the face value of bets. Tracking each bet and redeployment of amount is a complex issue, but this will not change the expected revenue realisation," the official further elaborated.

Revenue officials learnt to have informed the Council that revenue from all the three activities (e-gaming, racing, and casinos) was just over Rs 2,000 crore in FY23. They also apprised the Council about the suspected evasion due to ambiguity in the existing law, estimating that if the volume from these activities remains constant, the total collection could exceed Rs 19,000 crore.

In FY24, the government looks to raise Rs 9.56 trillion from GST, about 11.9 per cent higher than the FY23 Revised Estimate of Rs 8.54 trillion. CGST receipts for FY24 are budgeted at Rs 8.11 trillion, compared to Rs 7.24 trillion in the FY23 Revised Estimate. In July, revenues for the Centre and states after regular settlement were Rs 69,558 crore and Rs 70,811 crore, respectively.

“Assuming a total collection from both CGST and SGST is expected to be Rs 18-19 trillion (SGST slightly differs from CGST target), these activities would contribute 1-2 per cent to the total collection,” said a tax expert. However, the highest levy and new tax structure may hit the demand for such activities.

“The Council’s decision will bring some relief to the online real money gaming sector, but many smaller start-ups in this segment may still be significantly impacted once this higher GST comes into force – some of them possibly even before the expiry of the review period of six months. The issue remains that GST, despite being a tax on the supply of goods/services, is being levied on a value much higher than the actual revenue earned by online gaming platforms for their supply of facilitation services to players," commented Sudipta Bhattacharjee, partner at Khaitan & Co.

The Council discussed the impact of levying an 18 per cent GST on gross gaming revenue, as proposed by certain states. It, however, decided to continue with the highest rate on the amount paid or deposited with the online gaming supplier, citing insufficient revenue generation of about 12 per cent through GGR.

Importantly, the Council agreed to review the new tax structure six months after the tax takes effect under the amended rules.

The decision wasn't unanimous; some states, including Delhi, opposed the 28 per cent tax on online gaming, while others like Goa and Sikkim expressed a preference for taxing GGR rather than the face value of bets. “They are of the view that it will impact tourism and eventually their overall revenue,” a state minister said on the condition of anonymity. However, the Council dropped the argument.

States such as Karnataka, Gujarat, Maharashtra, and Uttar Pradesh supported the decision taken at the last GST Council meeting to implement the new levy.

Plan so far

Rs 2,000 cr: FY23 revenue from e-gaming, racing, and casinos

Rs 9.56 trn: Govt looks to raise from GST in FY24

Rs 8.11 trn: Budgeted CGST receipts for FY24 compared to ~7.24 trn in the FY23 Revised Estimate