Last week, the Goods and Services Tax (GST) Board unveiled its decision to impose a 28% tax on online gambling, casinos and horse racing, based on total face value. Finance Minister Nirmala Sitharaman stressed that the council did not intend to eliminate an industry, but discussions were held regarding the moral implications associated with the online gambling sector.
Sitharaman said after the meeting: “Our goal is not to end an industry; all types of businesses must operate. There were deliberations on the moral aspect that although we do not wish to eliminating an industry does not mean that we provide them with more incentives than essential goods.This decision, which has been pending for 2-3 years, could be made today because every state actively participated.
Under the new tax regulations, GST will apply to the total value of bets placed or the total amount paid as consideration.
It should be noted that Sitharaman clarified that the online gambling tax will be implemented whether the games are based on skill or luck.
She explained: “We will continue to align with the regulations proposed by the Ministry of Electronics and Information Technology (MeitY). An amendment will be made to Schedule III of the GST Act, including online gambling in the list of actionable claims. the list already includes betting, gambling and lotteries. We will also include online games and horse racing. Therefore, they will be subject to a 28% tax based on the total face value.
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Now, this announcement has led to considerable confusion within the Indian gaming industry, including businesses and individuals – particularly around which games will fall under the new announcement, and what is actually exempt.
ABP live spoke to Sandeep Chilana, a legal expert in commercial and tax litigation, liquor and gambling laws, and managing partner of law firms Chilana & Chilana in New Delhi, to get some clarification on the latest GST announcement Council.
Q: Could you please explain a little bit how the GST decision was made?
Chilane: The GST Board has ruled that the online gambling industry is required to pay GST not only on platform fees charged by businesses, but on the total amount paid in by players i.e. say the full pot.
GST clarified that the total amount paid by each player to participate in the game (contribution + platform fee) represents an “actionable claim” in the nature of a “bet” and would therefore attract GST.
The Secretary of Revenue also clarified that such a decision will be implemented retrospectively.
The government has also decided that this tax will be levied at 28 percent.
Previously, the GST Board formed a committee to make recommendations on the taxation of real-money gambling. However, the committee was unable to reach a consensus.
Q: Could you please explain what kind of online games will be affected by this GST hike? Are there any online gaming/esports titles that will be exempt?
Chilane: All games that are played for money, whether for skill or chance, will be impacted by this decision. Unfortunately, the government has failed to tell the difference between a game of skill and a game of chance.
Games played for money include not only games of chance but also other games of skill such as chess tournaments, DOTA tournaments or other fantasy games that involve skill.
Q: How will the GST increase from 18% to 28% impact online gamers in India?
Chilane: Currently, the tax charge on the entire transaction is 18% on the platform fee which is usually 10% of the amount paid by players, or 1.8%.
However, the impact would increase to 28% across the pot. This represents a substantial increase in the tax cost of the transaction and would significantly reduce the amount of the gain, making it less lucrative.
What will happen is that in every real money game, the government collects 28% GST on the full pot and 30% income tax on the winnings, which comes out to about 50%. Additionally, around 10% is the fees of the gambling companies, after which the winner is left with 40% of the total pot value.
Q: Expanding on the last question, what impact will this have on the operation and profitability of game developers?
Chilane: A reduced amount of earnings is likely to make Indian companies less competitive. a survey of online game players suggests that 65% were of the opinion that they would stop using Indian game companies to play games if the change was implemented.
Gambling companies operating from outside India would enjoy benefits unless the tax also applies to such foreign companies.
The reduced number of players will have a serious impact on profitability as well as future innovation and investment in the sector.
Q: Will game prices and in-game purchases be affected by this decision?
Chilane: Game licenses or in-game purchases would not be directly impacted by the proposed changes.
The change only applies to online games played for real money where players contribute to the participation fee, a large part of which becomes the winning amount for the top players/winners.
Q: How will this affect the entire Indian gaming industry globally?
Chilane: Excessive taxation is likely to move online gambling companies offshore, along with their innovation and investment.
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