28% GST on online gaming, casinos, horse racing: What it means for players

The GST Council has stuck to its earlier decision to impose a 28% levy on the full face value of bets placed on online gaming, casinos and horse racing, but kept the door open for a review.

The panel had at its last meeting decided to levy a 28 per cent GST on full face value of bets placed and Wednesday's meeting was to deliberate on the tax law changes that would be required to implement it.

Citing inadequate revenue generation (11-12%) in after levying GST at 28% on GGR, the GST Council has decided to proceed with the levy at highest rate on the amount paid or deposited with the supplier of online gaming from 1 October. However, the Council has agreed to review the levy after six months. 

Moreover, there is a minor respite to players as the government has provided clarity that GST would be leviable only on the initial deposit amount (real money) and not on the value of each bet from the winning amount.
 

"The decision to review its implementation after six months demonstrates the council's willingness to consider the impact on all stakeholders. However, the lack of clarity on the "face value" of online gaming had previously caused dissent within the industry," said CA Abhinit Singh , founder, Ready Accountant.

What is the revised proposal? 

The revised proposal of the GST council is going to impose a levy of 28% GST on the amounts deposited by players with online gaming companies. This is in contrast to the original reccomendation which was to charge 28% on the wager in each game. This arrangement is slightly more favorable to gaming companies but is still far from the ideal.  
 

"The new proposals keep online gaming companies at par with Casinos in terms of the point of and value of taxation, but ultimately the enhanced tax collected will lead to a reduction in the amount in the system at any given point of time," said -Pallav Pradyumn Narang, Partner, CNK.

As per the industry's estimate this will lead to a reduction in player activity and consequently reduction in the revenues and profitability of the companies.

 The one significant change is the levy of GST at the rate of 28% on the full face value in the online real money gaming, irrespective of whether the activities are a game of skill or chance

" This is a huge shift from the existing practice of the online real money gaming industry, which has been making the payment of GST only on the platform fee," said -Ankit Jain, Partner, Ved Jain & Associates.

 The GST Council recommended that the valuation of supply of online gaming may be done based on the amount paid or payable to or deposited with the supplier, by or on behalf of the player (excluding the amount entered into games/ bets out of winnings of previous games/ bets) and not on the total value of each bet placed.

What does this mean?

"It implies that GST will be levied only on the initial buy-in, and not on the winnings and the bets placed from the winnings, which will prevent the double taxation," said Jain, explaining this with the following example.

Say a player wants to play with Rs 1 lakh. He will have to pay GST@ 28% i.e. Rs. 28,000 additionally. When he places a bet, he will have to pay the platform fee of, say 15%, amounting to Rs 15,000. Assuming he places the bet and wins Rs  20,000, in which case he is not required to pay GST on this amount again, even if he places another bet with this winning amount.

However, TDS under Income tax at the rate of 30% i.e. Rs. 6,000 will be deducted from this winning amount.

If we look at the final picture, the player invested Rs 128,000 but ended up with Rs. 99,000 only, despite winning Rs. 20,000.

Small players will be discouraged to play

"This might discourage the small players to a great extent and this is why the online real money gaming industry has been frightened ever since the 50th GST Council Meeting," said Jain.

"The GST of 28% would leave pot value of around Rs 68/- only with a player, assuming an entry fee of Rs10/- and total bet value is considered inclusive of GST. His winnings would now be based on Rs. 68/- as against on Rs. 88/- earlier. This will significantly reduce the interest of players in the organised gaming," said Kamal Agarwal, Senior Partner - GST, Singhania & Co.

The 28% GST is creating a hindrance for the players to make more money.  Earlier, only 18 % GST was being levied on the platform fee. Assuming, Rs. 100 was the platform fee and Rs. 100 was the contribution paid by the player, the GST paid by the player was Rs. 18 only i.e. only on the platform fee and no GST had to be paid on the contribution amount. 

From 1 October 2023, 28% GST would be paid on the whole amount paid by the player i.e. platform fee + contribution amount. 

"Assuming that the platform fee is Rs. 100 and contribution made is Rs. 100 paid by the player, the GST to be paid by the player would be Rs. 56 i.e. Rs. 28 on the Platform fee and Rs. 28 on the contribution amount. The said change in GST rate would decrease the amount to be taken home by the player, which would clearly create disruption amongst the professional players. The players would also get attracted towards international gaming platforms so as to earn more money," said Rohit Arora, Advocate expert in taxation and commercial laws.

The said change in GST rate would decrease the amount to be taken home by the player

" This would clearly create disruption amongst the professional players. The players would also get attracted towards international gaming platforms so as to earn more money. It is important to understand that the players do not get any benefit of input tax credit of the GST paid by them in any manner inasmuch as that on platform fee, gaming equipment etc and it adds to their costs.   Further, the 30% income tax on winning amount will only worsen the situation," explained Arora.

What the GST rule means for online gaming companies:

While the online gaming companies can preserve the profit margins  by just transferring the burden of GST to their customers, eventually this is likely to result in a significant dip in terms of number of subscribers and overall investment into the online gaming industry. 

"Even shifting of base outside India would not help to escape the levy, as the GST Council has decided to bring in GST registration requirements for such offshore companies for the purpose of discharging GST in India. It is evident that the Government is firm on its position that online gaming, horse racing, and casinos would be treated at par with betting and gambling for the purposes of GST," said Saket Patawari, Executive Director, Indirect Tax, Nexdigm