Parliament cleared two vital money Bills on Friday, paving the way for the implementation of a 28 per cent goods and services tax (GST) on online money gaming, casinos, and horse racing clubs on the full face value of entry-level bets.
The proposed legislation differentiates between online gaming and online money gaming, and introduces provisions for the enforcement of the tax on offshore gaming operators by making GST registration “mandatory”.
According to the Bills, which were moved by Union Finance Minister Nirmala Sitharaman, suppliers of online money gaming located abroad must take single registration in India through a simplified scheme. If there is a failure to comply with the registration and payment of tax, access will be blocked to “any information generated, transmitted, received or hosted” in any computer resource used.
If the supplier of such services doesn't have a physical presence or a representative in the taxable territory, a person must be appointed to pay integrated GST on behalf of the platform, the proposed legislation said.
The passage of both money Bills — the Central Goods and Services Tax (Amendment) Bill, 2023, and the Integrated Goods and Services Tax (Amendment) Bill, 2023, — are in line with the decision of the GST Council, to implement the new tax laws from October 1. States also have to clear changes to state GST laws in this regard.
Additionally, the Bills provide clear definitions of online gaming, online money gaming, supplier, and specific actionable claims to clarify the taxability of these activities.
Online gaming is defined as the offering of a game on the internet or an electronic network and includes online money gaming. Online money gaming has been introduced as a “specified actionable claim” and will now be treated on a par with betting, casinos, gambling, lottery, and horse racing.
For online gaming platforms, 28 per cent GST applies only where wagering is involved, not to services provided for entertainment purposes only.
The Bills also clarify that online money gaming includes scenarios where players pay or deposit “money or money's worth”, including virtual digital assets, in expectation of winning games, schemes, or competitions, regardless of whether the outcome is based on skill, chance, or both.
Rajat Bose, partner at Shardul Amarchand Mangaldas & Co, said: “The coverage to include virtual digital assets ensures that any form of consideration (real, crypto, digital) will now be covered under the ambit of tax, and transactions in cryptocurrency, etc, cannot be a loophole to escape GST.”
On July 11, the Council decided to propose a GST higher tax rate on online gaming, a move that received criticism from the industry. Later, the Council in its August 2 meeting decided to exempt redeployment of the winnings from online gaming from the levy, providing some relief to the industry.
The Council decided that the tax would apply to the total bet placed at entry level, for each gaming session, but not on each round of betting on the gains redeployed.
“The amendments would help defend past litigations. However, one issue that remains unresolved is whether the deposit of money in an online gaming wallet constitutes a supply. This issue is likely to be subject to interpretation from time to time,” said Saurabh Agarwal, tax partner, EY
Currently, the online gaming industry pays GST at 18 per cent on platform fees/ commissions. The amendments, imposing higher taxes on the full face value of entry-level bets, would lead to increased GST revenues.
These amendments seek to establish a robust legal framework, eliminating legal ambiguities, and addressing various stakeholder concerns, according to sources.