Parliament on Friday approved amendments to the Central and Consolidated GST Act to introduce a full 28% tax on bets placed at online betting, casinos and jockey clubs.
Operating in India is also made mandatory under the Central GST (Amendment) Act 2023 and the Consolidated GST (Amendment) Act 2023 piloted by Finance Minister Nirmala Sitharaman An offshore video game company must be registered. It also stipulates that access will be blocked if offshore platforms do not comply with GST registration and tax payment norms.
The CGST amendments define “online gaming” as gaming on the Internet or electronic networks.
“Online money game” means an online game, including a game, scheme, contest, or any other activity in which players pay or deposit money (including virtual digital assets (VDA)) in any event with the intention of winning money or VDA, whether its Results or performance are not based on skill, opportunity or both.
With the amendments to the GST Act, horse racing, casinos and online money games will be treated as actionable claims similar to lotteries, betting and gambling.
Casual online gaming does not involve money or any remuneration and therefore is not subject to GST, the source said.
The amendments will help combat money laundering, illicit proceeds, black money and other illegal activities related to online gaming and curb tax evasion, they added.
The bill was approved by both houses of parliament without any discussion.
With the passage of the CGST and IGST amendments, the states must now make similar changes to their state GST laws in their respective parliaments.
The amendments were approved by the GST Committee, chaired by Sitharaman, and made up of state ministers last week.
The amendment involves the insertion of a clause in Schedule III of the CGST Act 2017 to clarify the taxation of casinos, horse racing and online gaming supplies.
The amendment to the IGST Act involves the insertion of a provision imposing Goods and Services Tax (GST) liability on online money games provided by offshore entities. Such entities are required to be GST registered in India.
At its July 11 meeting, the committee approved a 28% GST on the full face value of online gaming, casino and horse racing betting. Subsequently, at its meeting on August 2, the council met and decided that GST would be levied at face value on entry-level bets made at gaming platforms and casinos despite the three states of Delhi, Goa and Sikkim saying be opposed to.
For example, if the wager amount is Rs 1,000 and the player wins Rs 300, and if the player reallocates the winning amount or Rs 300 into the game, no GST will be charged on the winning amount.
Currently, the online gaming industry is subject to GST at 18% platform fee/commission. Such commissions range from 5% to 20% of the total face value of bets.
As for the jockey clubs, some pay 18% platform fees, while very few jockey clubs pay 28% at face value.
The industries are contesting the 28% tax on actionable claims in the form of betting and gambling in various legal forums.
Casinos also currently pay a GST of 28% on Gross Gaming Revenue (GGR).
The imposition of a 28% GST on the full face value of entry-level bets will result in an increase in GST revenue.
The amendments are aimed at creating a strong legal framework to avoid legal ambiguity and address various concerns of stakeholders, the sources said.
According to NITI Aayog estimates, the online gaming industry will grow 28% to $1.9 billion by 2021.
Sources said that in making its recommendations, the GST Commission has given due consideration to the negative impact of online money games on society, especially the youth, namely “Internet Gaming Disorder” due to addiction to online games.
In the past week since the publication of the GST Council’s recommendations, the online gaming industry has expressed serious concerns about the impact of the decision on the industry. They said the move would have a negative impact on the industry.
On Wednesday, the Mobile Premier League (MPL) laid off about half of its Indian team, or nearly 350 people, to ease the cost burden as the GST was raised to 28%.
On Thursday, Kavin Bharti Mittal-founded Hike, which owns Rush Gaming Universe, laid off about 55 employees — more than a fifth of its workforce — to absorb merchandise and Impact of service tax hike on online gaming.
Several smaller gaming startups, including Quizy, have also announced closures.