Finance Minister Nirmala Sitharaman speaks during a media briefing regarding the outcome of the 52nd Goods and Services Tax Council Meeting in New Delhi on October 7, 2023.
| Photo Credit: PTI

The Goods and Services Tax (GST) Council on Saturday lowered the tax rates on certain millet-based products, tweaked the age-related norms for members of the much-awaited GST Appellate Tribunals, and ceded the taxation rights on extra neutral alcohol to the States, while lifting the haze on several long-hanging issues.

The Council also signalled that there would be no back-pedaling on the 28% levy to be imposed on bets made in online gaming, casinos and horse racing from October 1, despite 13 States not having passed the enabling laws yet. Tax demands worth an estimated ₹1.5 lakh crore served on e-gaming firms for the prior period were also discussed, but it was asserted that the amended GST law is not retrospective in nature.

The notices issued to gaming firms for recovering taxes for the period up to September 30, were based on the law as it existed for betting activities, the Council was told when Ministers from Delhi and Chhattisgarh raised the issue. The Supreme Court is expected to take a view on the tax demands for the prior period on an appeal filed by the Revenue Department against a Karnataka High Court decision that dismissed a tax demand of over ₹21,000 crore served on Gameskraft.

18 States have amended laws

Union Finance Minister Nirmala Sitharaman said that Delhi’s Finance Minister had raised concerns about the impact on the gaming industry, while Goa’s Minister flagged the impact on casinos.

“The Delhi Minister’s concerns were more on the lines of, ‘taxing them [online gaming] will kill a sunrise industry, our youth needs this industry’, and also then taking up the issue of the notices that have gone to these companies. Of course, she also highlighted that this decision has been discussed over two to three years, and if the decision taken by the Council is going to hurt the young and youthful industry that has so much prospects, and so on,” she said.

Revenue Secretary Sanjay Malhotra said that at the latest count, 18 States had passed the necessary changes to their GST laws through ordinances or amendments to make the 28% gaming levy effective from October 1. Even the 13 States that have not passed it have said that they will pass it with effect from that date, he added.

GST cess

Asked if the recent trend of higher GST revenues could lead to swifter rationalisation of the GST rate structure, Ms. Sitharaman said this was not discussed in the Council, adding that no call has been taken on the rationalisation exercise yet. She parried a query on the reconstitution of a ministerial group tasked with the issue, which was earlier headed by former Karnataka Chief Minister B.S. Bommai.

The Council decided to meet in the future to work out a “perspective plan” on imposing a cess or surcharge on top of GST levies and how those surcharges could be used after March 2026, when the GST compensation cess used to recompense States for joining the indirect tax regime is expected to be phased out.

Rate rejigs

Meanwhile, the tax rates on some goods and services were clarified or tweaked, along with measures to facilitate trade and explicitly lay out procedures and tax treatment where confusion prevailed.

For instance, an emerging dispute on the treatment of guarantees issued by directors of companies for corporate loans has been settled by stating that they will not attract GST. Guarantees issued by companies to their subsidiaries will attract 18% GST on 1% of the guarantee offered, or the actual consideration, whichever is higher.

Taxpayers have also been granted an additional window till January 31, 2024 to file appeals against pending cases that were filed by the Revenue Department till March 2023, by paying a slightly higher proportion of the disputed tax levy as a “pre-deposit”.

Image for representation purpose only.
| Photo Credit: Reuters

The government on September 6 notified amendments to GST law in relation to the valuation methodology to be adopted by online gaming companies and casinos for calculating tax.

The Ministry of Finance notified amendments to Central GST law for calculating value of supply in case of online gaming and casinos as per the decision of the GST Council last month.

Also read: ‘Government intervention will give regulation of online gaming a lot more teeth’

EY Tax Partner Saurabh Agarwal said this shall effectively settle the ambiguity and uncertainty around this issue. “However, the aspect of whether mere deposit of money in a wallet qualifies as a supply is unclear, and may possibly be challenged by industry,” Mr. Agarwal added.

AMRG & Associates Senior Partner Rajat Mohan said under the valuation rules, the full tax rate would be applicable on the total amount paid to online gaming company/casinos, without any relief to the taxpayer in case of refund/return of money.

Notification clarified that winnings by any player would remain tax-neutral, as the entire tax is collected at first stage only.

“Until now, the government has not indicated any transitional provisions for the current cash buy-ins in the player pools. We can expect the government to clarify this position through a circular in the coming few months,” Mr. Mohan added.