28% GST on online games to stay; Council meet may discuss law tweaks, clarifications

Even as the GST Council meeting scheduled on August 2 has raised the anticipation of the sector participants, a large section of those who have reached out to the finance ministry as well as the Prime Minister Narendra Modi, have been informed that Centre maintains the meeting will primarily discuss the amendments needed to the GST laws to impose 28% levy on online gaming, casinos and horse racing on full value. This is higher than the 18% levied only on the platform as fees earlier.

It may be noted that on July 11, the GST Council – which is the apex body on the GST matters -- unanimously decided to bring online gaming, horse racing and casinos under the 28% GST bracket. The slab applies uniformly to both skill based games and chance based games. “Implementing this requires amendments to the GST Act making online gaming as taxable action subject to claim. This, along with the methodology of the taxation, subsequent rules, if any, may be discussed,” said a source.  

Actionable claim is the legal right to receive payments in lieu of goods or services, including any legal obligation. Another source pointed out that there is no rethink on the rates, which are here to stay. It is expected that the finance ministry will move the amendments in the ongoing monsoon session of the Parliament.

The online gaming industry is concerned about the colossal tax outgo post the July 11 decision of the Council, which will make the full value subject to GST. Sources pointed out that the additional deliberations of the Council may be of clarificatory nature, given the massive blowback to the government initiative for higher taxation on the sectors.

Tax experts are of the view that a number of clarifications are still needed. “Unresolved issues like how foreign gaming companies would be included in the GST system still need to be resolved. In the case of casinos, would the chips be viewed as being comparable to vouchers if there was a tax point on the purchase of chips? A credit note may be sent if the player decides not to play and cash in their platform funds or chips. The government should develop specific regulations for how it plans to tax online gaming and casinos to avoid creating new legal disputes down the road,” said Ankur Gupta, Practice Leader (Indirect Tax) SW India.  

The upcoming GST Council meeting on August 2 comes in the backdrop of domestic as well as the foreign investors in the gaming sector giving a detailed presentation to the PM Narendra Modi urging the government to roll back the high tax imposed on the sector and the domestic companies writing to the finance ministry on the ill impact of the move on the sector.