There were mixed reactions from the online gaming industry and experts to the recommendations of the GST Council for a mechanism to implement uniform 28 per cent GST on the face value of online money gaming, casinos and horse racing. The new mechanism is expected to kick in from October 1.

The Council, in its meeting on Wednesday refused to budge from its earlier recommendation of taxing on the face value of chips or bets. However, it provided a minor relief by clarifying that no GST will be levied in case winning amount is redeployed. The Council also decided to review the mechanism six months after the implementation.

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Though the decision is uniform for all three — online money gaming, casinos and horse racing — only the online gaming industry was vocal on the issue.

E-gaming bodies respond

In a joint statement, the Federation of Indian Fantasy Sports (FIFS) and E-Gaming Federation (EGF) said that 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,” the statement said. The FIFS and EGF represent 50 Indian online gaming companies.

Legal and tax experts apprehend that very high tax will hurt the growth of the industry. Shivani Jha, Tech Policy Lawyer says the heavy tax burden will be detrimental for gaming companies and gamers, “trickling to livelihoods of game developers, who make the game”. “The blanket provision on skill and chance games further muddles due process. Additionally, this may move users to illegal offshore betting platforms,” she said.

Explaining nuances of the recommendation, Sudipta Bhattacharjee, partner with Khaitan & Co, says the GST Council clarified that vis-a-vis online real-money games (‘fantasy’ games as well as other real-money games) the GST at 28 per cent will be applicable on the actual cash/equivalent deposits made by players on an online gaming platform to commence gameplay and not on the winning amounts being redeployed by players for further gameplays.

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While this will certainly afford some amount of relief to the online real money gaming sector, many smaller start-ups in this segment may still get very badly hit once this higher GST comes into force — some of them possibly even before the expiry of the review period of 6 months.

 “Investors in this sector may continue to be concerned given the ‘blow hot, blow cold’ approach towards online gaming as a sector where on the one hand, the sector is lauded and encouraged through ‘light touch’ regulations by the MeITY and on the other hand punitive taxation is reaffirmed to be imposed under GST (despite several pleas from the sector) by levying the same level of GST as ‘betting and gambling’ on online games of skill, ignoring decades of settled legal position that games of skill cannot be equated with gambling,” she said.

According to L. Badri Narayanan, Executive Partner, Lakshmikumaran & Sridharan Attorneys, the implementation of the amendment (prospective or retrospective) for past period will be based on the decision taken by Apex Court in Special Leave Petition Court challenging the decision of the Hon’ble Karnataka High Court in the Games kraft matter. This will result in a precarious situation of current investigations being continued till finality is obtained in SC. Recognition of use of Virtual Digital Assets (VDA) to cash to play online real money games is positive development. Acknowledging the use of VDA as a legitimate mode of payment is in line with global VAT developments.

Overall, the recommendation “will have an impact on the sector , however it’s a balanced approach,” he concluded.

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