Indian Gaming Industry Hit with 28% GST: Implications and Reactions
The 47th GST Council Meeting’s Landmark Decision
India’s thriving online gaming industry is valued at a staggering $1.5 billion and has been an engine of rapid technological growth and innovation. However, the industry was dealt a significant blow when the 47th Goods and Services Tax (GST) Council Meeting introduced a 28% GST on online games. This crucial meeting was presided over by Meghalaya’s Chief Minister, Conrad Sangma, along with delegates from eight states, including West Bengal, Uttar Pradesh, Goa, Tamil Nadu, Telangana, Gujarat and Maharashtra.
The GST Council was tasked with the monumental responsibility of determining the taxation framework for casinos, horse racing and online gaming. Primarily the Council needed to decide whether the new tax should be imposed on the gross gaming revenue, the fees charged by the platform or the total face value of bets placed by players. Following this, the 50th GST Council Meeting which was led by the Union Finance & Corporate Affairs Minister, Smt. Nirmala Sitharaman, convened on 11 July 2023, to finalize the tax structure. The decision was to levy a uniform 28% tax rate across casinos, horse racing and online gaming based on the face value of the bets placed.
The Council, after thorough discussions and taking into account the final report, arrived at the following resolutions:
- There will be appropriate modifications to the law to categorize online gaming and horse racing in Schedule III as taxable actionable claims;
- A consistent rate of 28% tax will be imposed on all three entities: casinos, horse racing and online gaming;
- The tax will be levied on the face value of the chips bought in casinos, the total value of bets placed with bookmakers or totalisators in the case of horse racing, and the full value of bets placed in the context of online gaming.
This taxation reform has sparked a flurry of debate and dissent among various states, each offering its unique perspective on the matter. West Bengal and Uttar Pradesh staunchly advocated for the imposition of a 28% GST on the full face value of the bets across all three activities. In contrast, Gujarat suggested that the tax should apply solely to platform fees. Meghalaya introduced an alternative proposal, suggesting that the 28% tax could be imposed on Gross Gaming Revenue (GGR) or platform fees or commission charged on casinos, online gaming and horse racing. They further recommended the establishment of a separate ‘Online Gaming or Digital Gaming’ category to streamline the administration of tax collection. Tamil Nadu and Telangana suggested that if the GST Council does not consider these activities as actionable claims of betting and gambling, then a 28% tax should be levied on the GGR. Meanwhile, Maharashtra, while endorsing the 28% tax rate for all three supplies argued against differentiating taxation based on the activities involving skill or chance. Goa presented a contrarian view, opposing the 28% GST move and favouring the continuation of the current 18% tax rate on platform fees levied by the gaming operators.
However, the effective date for the application of the 28% GST is yet to be announced by the government.
The Gaming Industry’s Concerns and the Government’s Justification
This groundbreaking decision has sent shockwaves throughout the online gaming industry. Many within the sector fear that the move could potentially hamper investment and limit the industry’s capacity to generate revenue. Given the massive surge in the popularity of online games and the industry’s subsequent revenue generation potential, this concern is quite valid. However, government officials justify this move by citing rising concerns about the increase in online gaming addiction. In this light, the increased tax rate is seen as a necessary ‘de-addiction measure.’
Current Taxation and Future Implications
Currently, the GST regime distinguishes online games based on skill and chance. Games of skill, where the outcome is determined by a player’s expertise, practice and experience are subjected to a lower tax rate compared to games of chance. The latter, considered as gambling, betting and horse racing falls under Rule 31A of the Central Goods and Services Tax Rules, 2018 (CGST Rules) and is subjected to a higher tax rate.
While the newly implemented tax change has received significant criticism from the gaming industry, the actual impact can only be ascertained once the 28% GST is implemented.
Once the implementation of this tax change goes into effect, it is likely to catalyze discussions about the responsibilities of the gaming industry and its role in society. This underscores the delicate balance that needs to be struck between fostering economic growth and ensuring consumer protection. The unfolding scenario in India could well serve as a precedent for other jurisdictions grappling with the rapidly growing online gaming sector and its implications. As this new era dawns on India’s online gaming industry, all eyes will be on the long-term impacts of these tax changes on the industry’s growth, innovation and societal impact. The industry’s response and adaptations to these changes will indeed shape the future trajectory of online gaming in India.