Online games likely to draw 28% GST soon

A group of ministers (GoM) has found merit in imposing 28% Goods and Services Tax (GST) on online gaming to bring it at par with levies on casinos, race courses and gambling, but are yet to formally submit its report to the GST Council, the final decision-making body, two people aware of the development said.

The GoM, which is yet to finalise its formal report, is expected to submit its recommendations to the Union finance ministry this week, these people said, asking not to be named. An eight-member panel, headed by Meghalaya chief minister Conrad Sangma, is examining the taxation structure of casinos, race courses and online gaming.

“The Group of Ministers (GoM) on casinos, race courses & online gaming has come to a consensus. The report of our submissions will be handed over to Hon’ble FM, Smti. @nsitharaman Ji in a day or two & the matter will be presented in the next @GST_Council Meeting,” the GoM head tweeted on Wednesday. Union finance minister Nirmala Sitharaman is the chairperson of the GST Council. The ministry did not respond to a query on this matter.

According to the Council’s website, the GST on services, such as services by way of admission to entertainment events or access to amusement facilities including exhibition of cinematograph films, theme parks, water parks, joy rides, merry-go rounds, go-carting, casinos, race-course, ballet, any sporting event such as Indian Premier League, and the like attract 28% GST. Similarly, services provided by a race club by way of totalisator or a license to bookmaker in such club and gambling are also put on the top slab of 28%.

One of the persons cited above said the GoM will plug all legal loopholes and bring more clarity on taxing these items such as tax rate, the value on which GST will be applicable and tax on the winning amount.

Besides, the same template could be extended to cryptocurrencies, which attracts 18% GST.

HT on May 9 reported that the government may expand the indirect tax net over cryptocurrencies to cover the entire gamut of activities, including their usage for exchanging goods and services, at the highest slab of 28% as many parliamentarians have demanded to treat them at par with lotteries and gambling.

Saurabh Agarwal, tax partner at consultancy firm EY India, said that the high GST rate on these sectors would augment revenues. “However, all forms of online gaming should not be considered for GST at 28% as many such games are merely meant for entertainment,” he added.

L Badri Narayanan, executive partner at law firm Lakshimkumaran and Sridharan Attorneys said the proposal to levy GST on the initial betting and gaming amount lacks clarity on valuation to be adopted for different gaming formats. “Adopting flat rate and simpliciter valuation method on initial betting and gaming amount for casino, racing and online gaming will result in absurd scenarios based on the format of the game and mode of playing the game (online or physical),” he said.

“Levying tax either on the entire entry fee/contest amount or on the initial deposit in the wallet used as play money will result in different end results. This will entail levy of tax even on actionable claim in the form of prize pool to be distributed amongst winners, where the element of service is absent,” he added.