GoM to stick to 28% GST plan on online games


A group of ministers (GoM) on casinos, racetracks and online gaming are likely to stick to their earlier recommendation of a flat tax of 28% on the total value of consideration over the three, sources have said to FE.

The GoM, however, may add a note on further GoM deliberations following a further round of stakeholder input.

During the June 29 GST Council meeting, Finance Minister Nirmala Sitharaman, who is the chairman of the federal body, gave the GoM another 15 days to revisit taxation issues after the Goa government flagged some concerns about casinos. However, the GoM could not come to any other decision so far due to differing opinions.

The GoM, in its first report in June, had recommended that in the case of online gambling, the activities should be taxed at 28% on the total value of the consideration, regardless of the name of this counterparty, including the costs of payment. entry into the competition, paid by the player for his participation in these games. Given that GST is levied on skill-based online games at 18% currently on platform fees (up to 20% of contest entry fees), the tax impact on the gaming industry will increase if the proposal is implemented.

In the case of racetracks, the GoM had previously said that GST should continue to be levied at the rate of 28% on the total value of bets aggregated in the totalizer and placed with bookmakers. In the case of casinos, GST should be applied at the rate of 28% on the total face value of chips/coins purchased from the casino by a player, he said. In the case of casinos, once GST is levied on the purchase of chips/coins (on face value), no further GST is applied to the value of bets placed in each round of betting, including those played with winnings from previous rounds, the GoM had said in the first report.

“There will likely be another GoM meeting, probably virtually, before he reports to Council,” an official said.

At its last meeting in September, the GoM decided to seek legal advice on whether prize money in online games and horse racing is covered by an ‘actionable claim’. .

At the same meeting, West Bengal and Uttar Pradesh reiterated their position that GST on online gambling, horse racing and casinos should be at a flat rate of 28% on the total value of the consideration without making a distinction between games of skill or chance.

On the question of whether horse racing, casinos and online gambling are gambling activities of skill or chance, the general view of central government officials is that it should not be relevant to the regime. of GST as in virtual digital assets (VDA) for income tax. In the FY23 budget, the Center imposed a 30% income tax on gains from VDA transactions, although debate is still ongoing on whether to ban these private virtual currencies/assets or regulate them.

Officials said that in all likelihood betting and gambling activities could have elements of luck as well as skill and that any tax based on skill or luck would only prolong disputes over the matter. So long as there is betting for monetary winnings, the activities should be taxed the same, including actionable claims forming part of those activities.

The definition of goods includes “actionable claims”. Schedule III of the CGST Act provides that actionable claims in the form of betting and gambling will be taxed. However, in the case of Gurdeep Singh Sachar v Union of India, the Bombay High Court observed in 2019 that the activities of Dream11 (online gambling) would not fall under gambling, but that these activities are “gambling of address”. However, the execution of this judgment was suspended by the Supreme Court in 2020.

“The GST Board may classify an actionable claim as ‘services’ placing it under Section 7 of the CGST Act for tax purposes without entering into the debate on games of skill or of chance, which can prolong the litigation,” said a person familiar with the matter. .

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