India: Group of Ministers broadly agrees on 28% tax rate for on online gaming, casinos, horse racing

A Group of Ministers (GoM) belonging to different states in India has broadly agreed that a 28% Goods and Services Tax (GST) should be imposed on the country’s casinos, racecourses, and online gaming. However, there was no unanimous agreement on the taxability of online games, as Goa proposed an 18% tax on platform fees, sources told the news agency Press Trust of India (PTI).

The GST council is set to make a final decision in its upcoming meeting on July 11th. The council will reportedly decide if the tax should be levied on gross gaming revenue (GGR), fees charged by the platform, or on the full face value of bets put in by players of online gaming, horse racing, and casinos. The meeting will also see the council determine whether these activities fall under the category of actionable claims of betting and gambling.

Gaming firms cite concerns over taxation

Top online gaming firms have voiced their concern by sending a representation through the FICCI Gaming Committee to the Central Board of Indirect Taxes & Customs (CBIC). The firms have urged the committee to not hike the GST rate for the sector from 18% to 28%, as suggested by the group of ministers.

The companies noted that a change in GST rate from 18% on GGR to 28% would be “extremely detrimental to the survival of the online gaming industry as no business operations can survive with such high taxation.” They also said that, regardless of the rate, it would be equally disastrous for the online gaming industry if GST would be charged the entire stake value. 

Economic Times cited Saumya Singh Rathore, a co-founder of gaming platform WinZO Games, who noted that proposing a 28% tax for gaming companies that are focused on building intellectual property and technology would lead to the demise of many smaller players. She also noted that it would discourage new entrants with alternatives to foreign products and technology.

States show differing views

The Group of Ministers, which was convened by Meghalaya Chief Minister Conrad Sangma, features members from eight states. These include West Bengal, Uttar Pradesh, Goa, Tamil Nadu, Telangana, Gujarat, and Maharashtra.

Among these states, West Bengal and Uttar Pradesh said that a 28% GST should be imposed on all three activities based on the full face value of bets placed. Gujarat believes in levying a 28% tax but on platform fees. 

Meghalaya proposed that a 28% tax be imposed on GGR, platform fees, or commissions charged by casinos, online gaming, and horse racing. It also suggested creating an Escrow Account, a  special mechanism to pool prize money for easier tax administration.

Goa urged a more lenient tax regime with a 28% tax on the GGR of casinos and an 18% GST on platform fees or service charges charged by platform operators. It also suggested treating contributions to the prize pool as supplies not subject to GST.

Southern states Tamil Nadu and Telangana proposed a 28% tax be levied on GGR should the GST council determine that the three activities are not actionable claims of betting and gambling.

Maharashtra suggested a 28% rate for all three activities. It also suggested that there should be no differentiation in taxation based on whether the activities involve skill or chance, and that the valuation rules should reflect this. The state also proposed providing a suitable abatement for determining the taxable value of the actionable claim, which refers to a claim of debt.

As there were differing views from state members, the Group of Ministers deferred the final decision on the tax rate and valuation to the GST council.

In June 2022, the Group of Ministers submitted a report suggesting a 28% GST on the full value of bets placed. However, Goa raised reservations about the report in the 47th GST Council meeting in June of last year, with other states also asking for a review. 

The GST Council thus asked the Group of Ministers to reconsider all the issues raised in the report. After that, the Group of Ministers met three times, conducted field visits, and engaged with industry stakeholders to gather more information and perspectives.