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The Goods and Services Tax Council, led by Finance Minister Nirmala Sitharaman, will convene on Wednesday. The council is anticipated to clarify the definition as well as the levy of the 28% tax on internet gambling.
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The GST Council is expected to provide clarity on what constitutes online gaming for taxation purposes, as well as whether games of skill or chance will be included in the definition. The group, led by FM Sitaraman, will convene through video conferencing.
At its previous meeting on July 11, the council resolved to apply a 28% GST on full-value online gambling, horse racing, and casinos. In the ongoing Monsoon Session of Parliament, the government is also anticipated to introduce revisions to the GST Act that will make internet gaming and horse racing taxable actionable claims.
The online gambling business has expressed its reservations about the 28% levy. According to Bimal Jain, Chairman of the PHDCCI’s Indirect Tax Committee, a clear distinction should have been established between online games that are skill-based and games that are in the nature of betting, wagering, and gambling. He noted that a charge of 18%, rather than 28%, would have been more reasonable for the protection and expansion of this business, especially start-ups in this sector.
According to Roma Priya, founder of Burgeon Law, a new-age legal practice focused on the startup ecosystem, the 28% tax on internet gaming has removed the distinction between games of skill and games of chance.
“This goes against legal precedent by treating online skill gaming as gambling.” Furthermore, taxing the entire amount of bets will have a detrimental impact on customers since they will receive less playable value,” said Roma Priya, adding that the levy would limit the industry’s growth.
Suman Bannerjee, CIO of US-based hedge fund Hedonova, stated that the move to levy a 28% tax on online gambling will have a negative impact on the sector.
According to Sanjay Chhabria, Director, Indirect Tax, Nexdigm, while the council’s decision to examine industry opinion on a 28% tax on online gambling is a positive development. “While a levy repeal appears unlikely, it will be interesting to see if the Council provides any relief to the India online gaming startup ecosystem,” Chhabria said. He suggested that industry participants use this as an opportunity to advocate for a lower GST rate, a differentiation between skill and chance games, and a modification in the valuation process to prioritize gross gaming revenue over bet value.
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