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| Photo Credit: Reuters

The Finance Ministry has notified October 1 as the date for implementation of the amended GST law provisions for taxing e-gaming, casinos and horse racing.

According to the changes to the Central GST Act, these supplies will henceforth be treated as “actionable claims” similar to lottery, betting and gambling and subject to 28% Goods and Services Tax (GST) on full face value of bets.

The amendments to Integrated GST (IGST) Act makes it mandatory for offshore online gaming platforms to take registration in India and pay taxes in accordance with domestic law.

In its meetings in July and August, the GST Council, comprising finance ministers of Centre and states, had approved amendments to the law to include online gaming, casinos and horse racing as taxable actionable claims, and clarified that such supplies would attract 28% tax on full bet value.

Parliament last month passed amendments to the Central GST and Integrated GST laws to give effect to the Council’s decision.

Also Read | A tentative rethink: On the Goods and Services Tax Council’s move 

The Finance Ministry has now notified that October 1 will be the appointed date for implementation of these provisions.

The GST Council in its meeting in August had decided that the amended provision to classify these supplies as actionable claims and clarifying the taxation provisions would come into effect from October 1.

A review of the implementation was proposed to be carried out after six months, which is April 2024.

Union Finance Minister Nirmala Sitharaman with Union MoS for Finance Pankaj Chaudhary and Revenue Secretary Sanjay Malhotra during the 51st Goods and Services Tax (GST) Council Meeting, in New Delhi, on August 2, 2023.
| Photo Credit: PTI

The GST Council on August 2 blinked a little on technicalities and kept the door open for a review down the road, but stuck to its earlier decision to impose a 28% levy on the full face value of bets placed on online gaming, casinos and horse racing, with an eye on implementing it from October 1.

Finance Minister Nirmala Sitharaman, who chaired the Council’s meeting, said the Centre would now strive to amend the Goods and Services Tax (GST) law in Parliament’s current session itself to enable the implementation of the levy, despite dissent from Sikkim and Goa over the modalities of the tax for casino users.

Tamil Nadu Finance Minister Thangam Thennarasu raised concerns about the levy’s impact on the State-wide ban on online gaming, which Ms. Sitharaman said would be addressed in the language of the new norms to explicitly state the tax cannot be levied where a ban is in place.

Also read: Explained | Will 28% GST on online gaming affect its growth? 

Delhi government’s representative sought a fresh review for the online gaming sector, but most other States leaned towards sticking to the Council’s decision last month which had been taken after three years of deliberations, the Finance Minister conveyed after the virtual meeting.

The online gaming industry, which had termed the Council’s decision a death knell endangering billions of dollars of investments and thousands of jobs in the sunrise sector, remained anxious but appreciated a critical clarification on the valuation rules for the 28% levy, approved by the Council on Wednesday.

Simply put, if someone enters a casino by buying chips worth ₹1,000, plays a round and wins ₹300, the tax will not be levied on ₹1,300, but on the entry amount of ₹1,000 alone, Ms. Sitharaman explained. In a joint statement, the E Gaming Federation and Federation of Indian Fantasy Sports welcomed this would address their concerns of “repeat taxation”.

“The new tax framework, while clarifying and resolving uncertainty, will lead to a very burdensome 350% increase in GST and set the Indian online gaming industry back several years. However, it will allow gaming companies a fighting chance to innovate and rebuild the foundation of gaming in India,” they added.

“…Because Goa and Sikkim [who wanted the 28% levy on casino bets to apply on gross gaming revenue and not the entire face value] kept appealing that they were small States and needed consideration, the Council agreed to come back after six months after implementation to review the way in which this is getting implemented,”

Revenue Secretary Sanjay Malhotra hinted the scope of the review will likely be limited to issues about valuation and the tax rates, which can be tweaked through notifications and rules, while the GST law changes will be broader “enabling provisions”.

Apart from the central GST law amendments, States will also have to amend their GST laws for the new tax to kick in, but Ms. Sitharaman expressed hope it can be implemented from October 1.

While the changes will not be retrospective per se, Mr. Malhotra emphasised they are more in the nature of a clarification because betting, gambling and lottery are already included as actionable activities under the GST law.

The Revenue Department believes online gaming, horse racing and casinos are also in the nature of betting only, he said. The High Court of Karnataka has not upheld that stand, dismissing a ₹21,000 crore tax demand against Gameskraft Technologies. “We have filed a special leave petition on the matter yesterday [Tuesday] and whatever the Supreme Court decides, will prevail,” the Revenue Secretary said.

Union Finance Minister Nirmala Sitharaman with Revenue Secretary Sanjay Malhotra during the 50th Goods and Services Tax (GST) Council Meeting at Vigyan Bhawan, in New Delhi, on July 11, 2023.
| Photo Credit: PTI

The Goods and Services Tax (GST) Council, at its 50th meeting on July 11, reduced or clarified the tax rate on some items ranging from uncooked or unfried snack pellets to special utility vehicles (SUVs), exempted imported drugs to treat cancer and rare diseases, and brought an end to a years-long debate on tax treatment of online gaming, casinos and horse racing.

Whether they involve skill or chance, or both or neither, bets and wagers made on all three activities, will attract a 28% levy and the GST laws will be amended to include online gaming, Finance Minister Nirmala Sitharaman said.

The Council also examined States’ proposals to set up 50 Benches of the much-awaited GST Appellate Tribunals in the country. The government has said that the statutory bodies to resolve mounting GST disputes shall become operational within four to six months, with Benches coming up in State capitals as well as places where High Courts have Benches, to begin with. The Council cleared the appointment and service conditions for tribunal members and the president, which will kick in from August 1.

The first meeting of the Council since February got off to a stormy start. Representatives of States not ruled by the BJP criticised the Union government’s recent decision to bring the GST Network under the purview of the Prevention of Money Laundering Act (PMLA), administered by the Enforcement Directorate (ED). The arguments were led by the Finance Ministers of Delhi and Punjab.

Ms. Sitharaman, who chaired the meeting, said many States had raised concerns about the issue and it was discussed after the listed agenda was concluded. Tamil Nadu, for instance, said that the inclusion of GSTN under the PMLA provisions is against the interests of taxpayers and against the basic objective of decriminalising the offences under the GST law.

Also read | Real money gaming industry reacts with shock to GST on deposits

“As this would affect the dealers across the country, especially small dealers, Tamil Nadu opposes the move,” a press statement from the State government said.

Revenue Secretary Sanjay Malhotra presented an explanation of the new provision to the Council, which he said members seemed “quite satisfied with”.

“This notification has been issued under Section 66 of the PMLA and has nothing to do with the GST law. It has been issued as it is a requirement of the Financial Action Task Force and our evaluation is under process,” he said.

Dispelling doubts that the GSTN is now going to share information about private businesses with other law enforcement agencies, including the ED, Mr. Malhotra said the ED will neither be receiving nor providing information.

“It was also clarified that this notification will empower our tax authorities with more information. The director of the Financial Intelligence Unit will provide information to the GSTN to empower the authorities wherever it feels there is a chance of tax evasion or money laundering; this information can be used as they deem fit,” he said.

The GST rate on uncooked, unfried snack pellets and fish soluble paste was slashed from 18% to 5%, while imitation zari threads or yarn will now attract 5% GST instead of 12%. The Council also decided that food and beverages consumed inside cinema halls shall attract 5% GST without any input tax credits, as opposed to 18% levied on cinema services.

The tax treatment on SUVs, which attract a higher GST compensation cess on top of the 28% GST levy, was also clarified taking into account concerns expressed by Tamil Nadu and Punjab that the higher cess levy must not affect sedans.

“Till now, for a vehicle to be categorised as SUV with higher compensation cess — four conditions had to be met. They had to be generally considered an SUV, were longer than four metres, with an engine of 1500 cc or more, and a ground clearance of 170 mm,” said the Revenue Secretary.

The Council has decided to scrap the condition that the vehicle should be popularly seen as an SUV, and clarified that the ground clearance of 170 mm should be of an unladen vehicle.

“On services, we have offered exemption on GST for satellite launch services provided by private organisations,” Ms. Sitharaman said.