Parliament passes GST amendment bills to levy 28% tax on online gaming

The amendments to the Central and Integrated GST laws to levy 28 per cent tax on the full face value of bets in online gaming, casinos and horse race clubs were passed by the Parliament on Friday. After the amnedment bills were passed in the Lower House, the Rajya Sabha returned the two proposed legislations to the Lok Sabha with a voice vote without any discussion. 

Priot to that, the Lok Sabha passed the Central Goods and Services Tax (Amendment) Bill, 2023 and The Integrated Goods and Services Tax (Amendment) Amendment Bill, 2023, on Friday, August 11 and as per the official release the Bill will be brought into effect from October 1st. 

History and background of the amendment bills

• The decision was taken after elaborate deliberations spanning over a period of about 3 years. A Group of Ministers (GoM) constituted by the GST Council undertook an extensive exercise including making visits to various placesand met with various industry representatives.

• The issue of taxation of supplies in casinos, horse racing, and online gaming was deliberated in GST Council in its 42nd meeting held on October 5th and 12th, 2020, and a Group of Ministers (GoM) was constituted on the same. 

• On February 10th, 2022, GoM was reconstituted with Conrad Sangma, Honourable Chief Minister of Meghalaya as the Convener of GoM. The GoM comprised of Ministers from Maharashtra, West Bengal, Gujarat, Goa, Tamil Nadu, Uttar Pradesh and Telangana. 

• GoM also met with various industry representatives of casinos, horse racing and online gaming. After detailed deliberations, the GoM submitted its second report to the GST Council, which was taken up for deliberation by the Council in its 50th meeting held on July 11th, 2023.

Recommendations of the GST Council

• The GST Council, in its 50th meeting, recommended that the actionable claims supplied in Casinos, Horse racing and Online gaming may be taxed at the rate of 28 per cent on full face value, irrespective of whether the activities are a game of skill or chance. 

• The Council had also recommended that the law may be amended to provide clarity in the matter. Further, the GST Council, in its 51st meeting held on August 2nd, 2023, recommended certain amendments in the provisions of the Central Goods and Services Tax Act, 2017 and the Integrated Goods and Services Tax Act, 2017 to this effect. 

• The Council also recommended that the valuation of the supply of online gaming and actionable claims in casinos may be done based on the amount paid or deposited by the player to the supplier, excluding the number of winnings of previous games or bets, and the same is not to be done on the total value of each bet placed. 

a) While making its recommendations, the GST Council duly considered the negative impact of online money gaming on society and the youth in particular, in the form of Internet Gaming Disorder due to addiction to online gaming. 
   
      — Council also considered the rate of taxation on food and other essential items vis-à-vis the effective rate of taxation on online money gaming and casinos, etc.

b) The Council also decided that the effect of the proposed amendments in Act and valuation rules will be reviewed after 6 months of the implementation.

Amendments

• The amendments introduced through The Central Goods and Services Tax (Amendment) Bill, 2023 make a clear distinction between online gaming and online money gaming specifying that online money gaming is that online gaming in which the player pays or deposits an amount in the expectation of winning some amount in a game or event, etc.
 
a) The amendments do not affect the tax on casual online gaming in which no real money or betting or wager is involved. 

b) The amendments make it clear that the activity of online money gaming will be taxed on the total amount paid or payable to or deposited with the supplier by or on behalf of the player, irrespective of whether the game is based on skill or chance or both. Additionally, any payments made by crypto assets will also be taxable.

c) Further, the amendment is being done in the Act to clearly provide, that actionable claims involved in or by way of casinos, horse racing and online gaming are covered under the ambit of GST. 

d) The definition of “supplier” is amended to ensure that individuals or entities operating and managing digital or electronic platforms for supplying specified actionable claims are considered suppliers of such actionable claims and liable to pay GST on the same. 

e) Registration under GST has been made mandatory for a person supplying online money gaming, from a place outside India to a person in India.

• The amendments introduced through  The Integrated Goods and Services Tax (Amendment) Bill, 2023, include:

a) A special provision to provide for tax liability on overseas suppliers of online money gaming and also the provisions for simplified GST registration for such suppliers as well as powers for blocking websites/platforms of non-compliant suppliers. 

b) This is intended to allay the concerns of domestic online gaming industry that these amendments in relation to online money gaming may lead to shifting of such online money gaming to platforms outside India. 

c) This provision will provide a level playing field to the domestic suppliers of online money gaming. 

d) In case of import of intangible goods such as actionable claims involved in or by way of online money gaming, etc., which do not physically cross customs frontier, IGST cannot be collected through Customs. The amendments will give powers to the Government to notify such goods, so that in case of import of such goods IGST can be levied and collected as regular inter-State supply under provisions of IGST Act.

• Apprehensions are being raised on the effect of the proposed amendments on Start-up ecosystem in India. It is made clear that the bills provide for no change in respect of taxation of casual online gaming, which does not involve real money or betting/wagering and therefore, such apprehensions are unfounded.

 — These arguments are baseless and misleading as this is not a ban it is just a tax on online money gaming which is nothing but gambling by any name, and it deserves to be taxed at the highest rate. Gambling is an addictive activity that harms the society and the individuals involved. 

• The amendments herald a new era of clarity and uniformity in taxation in respect of supplies involved in casinos, horse racing, and online gaming. The amendments seek to establish a robust legal framework to avoid legal ambiguities and also to address various concerns of stakeholders.