Budget Will Be Set Up with Existing GST on Online Gaming

Smt. Nirmala Sitharaman Press Conference following the 53rd GST Council Meeting. Image: Press Information Bureau India.

Item Was Not on the Agenda. Next GST Council Meeting Likely in August

The heavy 28% GST burden over entry deposits in casinos and online games was not relieved by the 53rd GST Council Meeting as the matter didn’t even enter the agenda, along with several other items.

“It wasn’t on the agenda. It didn’t come for discussion, it wasn’t taken up,” Union Minister of Finance Nirmala Sitharaman told the media at the Press Conference following the Meeting.

Despite the current setback, the glimmer of hope for the Indian online money gaming industry has not vanished. The long-awaited review of the new levy, which is still on the horizon, could theoretically bring about a positive change or even a roll-back of the tax, as industry representatives keep pleading.

The Union and State Finance Ministers agreed to convene the next GST Council Meeting “at the earliest possible date after today” to discuss any urgent matters that did not make it to the 53rd Meeting’s agenda.

“While there were a lot of agendas, a considerable number was taken up today. Even as we concluded today, we acknowledge the fact that we have ready agenda points, which we could not take up today, for want of time. We will take them up in the next meeting,” Union FM Sitharaman explained.

“The next meeting will be sometime post-budget… maybe in the middle of August or before the end of August,” she clarified.

The Center Knows Where It Wants to Spend the Money

Thus, India’s full budget for FY 2024-25 will be set up based on the existing GST regime over casinos, horse races, lotteries, and online money games and will include tax revenues from online gaming platforms to the tune of ₹1,200 crore per month, instead of the ₹200 crore the Government used to collect before the 1st of October, 2023.

“The central government expects to collect up to INR 14,000 crores in GST from this sector in the upcoming financial year. It is expected that this sector would contribute approximately INR 80,000 crore in the next five years,” Vinit Goenka, Founder Secretary of Centre for Knowledge Sovereignty (CKS), said.

CKS, an independent policy-oriented think tank, recently released a White Paper titled “Gambling Away India’s Sovereignty.” The report estimates the illegal betting market in the country at $100 billion annually in deposits and warns against associated risks “around national security, data sovereignty, cybercrimes, and questionable foreign funding.”

Notably, Sweden is undertaking a much more modest hike in its gambling tax from 18% to 22% on licensed gambling operators’ GGR (Gross Gaming Revenue). An impact analysis report estimated that the relatively small tax increase will push between 1.2% and 2.5% of the Swedish gambling market towards illegal channels, and around a thousand new people will develop gambling addictions.

Government Hands Untied to Relieve Retrospective Demands

The 53rd GST Council Meeting did produce news of relief for the Indian money gaming industry by adopting the Law Committee’s proposal to add a new Section 11A to the CGST Act.

The amendment, which Parliament can vote on in the upcoming monsoon session, will enable the GST Council to relieve homegrown gaming businesses from the egregious retrospective tax demands totaling ₹1,12 crore ($13.5 billion), excluding penalties and interest.

“Following Parliament’s approval, the section will be implemented through a notification. This move will enable the council to consider using the rule whenever and wherever it deems appropriate,” knowledgeable sources informed the media.

Potentially, the Finance Ministers can start the process at the next meeting of the federal policy body on indirect taxes, which is likely to be held in August.

“The GST Council’s recommendation to introduce Section 11A in the Central Goods and Services Tax (CGST) Act signifies a positive step towards achieving a more equitable tax environment. This new provision empowers the Central and State Governments, acting on the Council’s recommendations, to waive uncollected or under-collected GST dues arising from prevalent industry practices,” commented Saurabh Agarwal, Tax Partner at EY.

“The effectiveness of Section 11A hinges on a clear definition of “general practice” and the implementation of well-defined guidelines surrounding it. Careful consideration of these aspects is essential to ensure the provision achieves its intended purpose,” Agarwal added.

DGGI Looking into Tax-Offset Cashbacks after 28% GST Kicked In

In the meantime, a new investigation by GST Enforcement authorities might worsen the situation for the struggling gaming firms. Summons have been received by a multitude of businesses, including India’s sole operator of licensed gambling games like Roulette and Blackjack.

The Directorate General of GST Intelligence (DGGI) is now looking at the cashback promos offered by gaming platforms to end-users after the 1st of October 2023, aimed to offset the burden of the 28% GST and not pass it on to the customers.

“Investigation discovered that real money gaming companies were offering cashback to players in their promo accounts for which summons had been sent,” a source informed journalists. Registered accounts at money gaming platforms usually have three wallets: one for deposits, one for payments, and one for bonus money.

It is still unclear what has triggered the DGGI, as legal experts explain that such cashback should not attract additional GST.

“When taxes are already paid on the entire consideration paid by the user, the credit from the online companies should not be subject to further GST,” said Abhishek Rastogi, founder of Rastogi Chambers.