GST ON ONLINE GAMING: WHATS ON

[Dr. Sanjiv Agarwal]

The 50^th meeting of GST Council which was held on 11.07.2023, took various steps and measures towards trade facilitation and streamlining the GST compliances which, inter alia, included few tax rate changes on goods and services, acceptance of report of Group of Ministers on GST on casinos, race courses and online games and deciding rate of 28% thereon, approval of GSTAT rules for appointment, classifications on various issues, recovery of tax and interest under rule 88C(3), mechanism for differences in ITC between forms 2B and 3B, registration, returns, compensation cess on SUVs, exemption from IGST on certain imported medicines, extension of date for amnesty scheme notified in March, 2023, extension of exemption for filing form GSTR-9 / 9C, directors services in personal capacity not to be covered under reverse charge and so on.

In case of online gaming, there were certain issues involving valuation, place of supply, rate of tax on which industry players raised various concerns including even the danger of players including start ups being getting extinct due to being kept under highest tax slab of 28%, that too on gross value or face value of the transaction. The 51^st Council meeting held on 02.08.2023 primarily discussed about the taxation of casinos, online gaming and horse races. The GST shall be levied on the actionable claims supplied in casinos at the entry level.

GST on online gaming – 50^th GST Council meeting (11.07.2023)

• GST Council approved the recommendations of Group of Ministers on taxation of online gaming, race courses etc.
• GST shall be applicable on horse races, casinos and online gaming
• GST law shall be amended to include online gaming and horse races in Schedule III so as to be taxed as actionable claims.
• All such activities shall be taxed at an uniform rate of 28 percent GST
• Tax shall be levied on full face value of chips purchased (casino) or full value of bets placed (horse race, online games) and not on the fees part, if any.
• Online gaming to cover both-games of skills and games of chance with no distinction between them.
• 28% GST on online gaming will not be retrospective.
• Amendment in GST law is imperative which will have to be done fast including by states so as to make online gaming taxable w.e.f. 01.10.2023 as all the states will have to pass the amendment law.

GST on online gaming- 51^st GST Council meeting (03.08.2023)

• Approval of proposed amendments in CGST Act, 2017 and IGST Act, 2017 including Schedule III so as to provide clarity on taxation of supplies in relation to:

• Casinos
• Horse racing
• Online gaming

• IGST Act to specifically provide for liability to pay GST on suppliers located outside India who supplies online money gaming to any person in India.
• Foreign suppliers shall have to register in India for which separate procedure will be provided, i.e., registration in India will be mandatory for offshore gaming companies.
• GST to be levied on valuation of supply of online gaming and actionable claim in casinos at entry level.
• Games of chance and games of skill to be treated at par for levy of GST. These terms will be defined.
• Specific rules shall be framed for valuation of supply of online gaming as well as for supply of actionable claim in casino.
• 28% GST will be applicable on the actual cash or equivalent deposits made by players on an online platform to commence a game and not on the winning amounts redeployed.
• The payments received and winnings paid in Virtual Digital Assets (VDAs) by online gaming companies and casinos will suffer GST. This will bring both- overseas and domestic online gaming companies that accept and make payments in VDAs such as crypto currency under GST.
• It is expected that process of amendments and enforcement of levy of GST on online activities shall be complete by 01.10.2023
• The new levy, after required changes are made in the central and state laws, is likely to come into effect from October, 1.

The Council has decided to tax all online gaming activities irrespective of whether such activities are a game of chance on skill. Both types of online games will be treated at par for tax purposes.

Presently actionable claim are defined under section 2(1) of the CGST Act, 2017. Accordingly, 'actionable claim' would mean a claim to any debt, other than a debt secured by mortgage of immoveable property or by hypothecation or pledge of moveable property, or to any beneficial interest in movable property not in the possession,  either actual or constructive, of the claimant, which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent.

The key elements for any claim to be called 'Actionable Claim' are :

1. It is any type of debt other than a debt secured by mortgage of immovable property or by hypothecation or pledge.
2. Any beneficial interest in movable property not in possession of claimant, either actual or constructive.
3. Civil courts should recognize such claim as worthy of affording grounds for relief.
4. Such claims or interest could be either existing, accruing, conditional or contingent.
5. Actionable claims can be assigned.
6. Actionable claims can be enforced in a court of law.

This definition may undergo some change now.

Schedule III of the CGST Act, 2017 presently provides for that actionable claims other than lottery, betting and gambling shall be considered as activities or transactions which shall be treated neither as supply of goods nor as supply of services. It implies that once the GST laws are amended, following activities can be taxed for the purpose of levy of GST:

1. Lottery
2. Betting
3. Gambling
4. Online games of chance or skill
5. Horse racing
6. Casinos

First three in the above list are already covered and remaining three will be added for taxation w.e.f. 01.10.2023.

On valuation issue, it is stated that valuation of supply of online gaming and actionable claims in casinos may be done based on the amount paid or payable to or deposited with the supplier or on behalf of the player, excluding the amount entered into games based on the winnings of previous games.

Let’s assume that if one has placed a bet of Rs. 10,000 for online gaming or horse racing or bought a chip of  Rs. 10,000 in casinos, he will need to pay GST at the rate of 28 percent. If he wins, say Rs. 3,000 and the total amount in the next bet or chip becomes Rs. 13,000,  he will not be required to pay GST on the redeployed winnings amount of Rs. 3,000. However, if he loses Rs. 10,000 and places another Rs. 10,000 that will be considered a fresh bet or chip and will attract 28 percent GST.

The Bill to include these amendments is expected to be introduced in the ongoing session of Parliament.  The expectation is that all states will make changes in SGST laws in the next two months. While Delhi has opposed the levy of GST, states like Goa and Sikkim have sought a review on valuation, i.e., whether to be levied on face value or gross revenue ?

The effective date of 1^st October, 2023 will depend as preparedness and seriousness of all states / UTs which does not seem to be happening and this date may be deferred. It will be enforced on all India basis only. Further, the levy of GST on online gaming is also prone to lot of litigation.