GST Council recommends 28% tax rate for online gaming

The Goods and Services Tax Council, in its 50^th meeting, decided to tax online gaming, horse racing and casino services at a uniform rate of 28%.

The new tax rate will be applicable on the face value of the chips purchased in casinos, on the full value of the bets placed with bookmakers in the case of horse racing and on the full value of the bets placed during online gaming, says the GST Council.

This comes after a Group of Ministers (GoM) was constituted to look into the issues related to taxation on casinos, horse racing and online gaming. The GoM submitted its first report in June, 2022 and it was placed before the GST Council in its 47th GST Council meeting wherein, it was decided that the GoM may relook into all the issues once again. The GoM submitted its report and it was placed before the 50th GST Council meeting.

The GST Council has recommended suitable amendments to be made to the law to include online gaming and horse racing in Schedule III as taxable actionable claims.

The decision to levy 28% on gross value in the case of online gaming and casinos is perhaps not what the industry was hoping for, says Pratik Jain, partner, Price Waterhouse & Co LLP.

“While it has been indicated that this proposal is 'clarifictory' in nature, it would be better to make it prospective to put the past dispute to rest,” Jain says.

India's gaming industry, which is growing at a CAGR of 28-30%, is saddled with the decision taken in the 50th GST Council Meeting with regard to its taxability, says Kishore Kumar, lead, Indirect Tax, Taxmann.

“India is probably the only country to levy GST on full face value on all categories of online games. The blanket proposal to levy GST on full face value on online gaming will possibly put an end to the sub-judice debate of ‘game of skill’ vs ‘game of chance.' This change will bring the game of skill on par with wagering contracts which are in the nature of gambling and betting,” says Kumar.

From a revenue perspective the proposed amendment may significantly contribute to the government exchequer and will make states like Goa and Sikkim important from revenue generation perspective, he says. “This change will require host of amendments under the GST law especially with respect to the definition and taxability of actionable claims under GST. What remains to be seen is whether this change is going to apply prospectively or have a retrospective impact,” Kumar adds.

The GST Council also clarified that the supply of food and beverages in cinema halls is taxable as restaurant service as long as they are supplied by way of or as part of a service and supplied independently of the cinema exhibition service.

“Where the sale of cinema ticket and supply of food and beverages are clubbed together, and such bundled supply satisfies the test of composite supply, the entire supply will attract GST at the rate applicable to service of exhibition of cinema, the principal supply,” notes the GST Council.

According to Jain, the GST Council’s clarification that food & beverage supplied in cinema halls should be taxed at 5% is a welcome step and provides relief to the industry avoiding prolonged disputes.