Effect of GST on Online Gaming, Casinos, and Horse Racing!

The 50th GST Council meeting held on July 11th, 2023, made significant decisions regarding the taxation of the online gaming industry, casinos, and horse racing businesses. To remove any confusion about whether a game relies on skill or chance, the GST Council proposed a 28% GST rate for the entire scope of these sectors. This move requires an amendment to the GST law to encompass these changes.

Current Taxation Scenario

?Before going into the implications of these proposed changes, it's essential to understand the current GST treatment for these sectors.

• GST on Online Gaming: Online games are categorized into "games of skill" and "games of chance." The former attracts an 18% GST rate, while the latter is taxed at 28%. However, this distinction has sometimes proven problematic, leading to ambiguity in tax classifications.

• GST on Casinos and Horse Racing: Casinos and horse racing currently incur a flat 28% GST rate on the total bet value.

The Proposed Changes

The proposed changes suggest a more straightforward tax structure:

• Uniform GST Rate: The Group of Ministers (GoM) recommended a flat 28% GST rate on all online games, eliminating the need to classify them as games of skill or chance. This rate would apply to the total stake value rather than the platform fee.

• Casinos: A 28% GST rate would be applied to the total value of casino chips purchased during entry, but no GST would be applicable on bets made using winnings from previous rounds.

Implications

?These proposed changes could have several consequences:

• Higher Tax Burden: Online skill gaming platforms may see a significant rise in taxation, possibly by 50–53 percent, which can affect their profitability and foreign investment.

• Potential for Unlicensed Operators: The higher GST rates might drive some operators to set up unlicensed offshore gaming platforms.

Input Tax Credit (ITC)

?Registered taxpayers can typically claim ITC for goods and services used in their businesses. However, there are restrictions, and it's essential to understand the ITC rules.

Advance Rulings and Legal Challenges

?Several legal challenges and rulings have shaped the application of GST to gaming and betting, providing some clarity on specific scenarios.

Conclusion

The proposed changes in GST rates for online gaming, casinos, and horse racing aim to simplify tax calculations but may inadvertently impact these industries' growth. As India's online gaming industry thrives, balancing taxation and industry growth is crucial for all stakeholders involved.