Thursday, August 11, 2022

Overtaxation May Burden the Indian Gaming Industry and Stifle Tax Revenues

Ministerial Panel Recommends 28 Percent GST on Gaming, Valuation Rules Still Not Clear

The Ministerial Panel tasked to examine Goods and Services Tax (GST) rate, applicability and valuation issues relating to gaming has voted to recommend to the GST Council a uniform 28 percent levy on all concerned activities. At the same time, the applicable valuation rules concerning what the base for GST levy would be remain unclear.

The special Group of Ministers (GoM) under the lead of the Chief Minister of Meghalaya Conrad K. Sangma was established during the 43rd meeting of the GST Council one year ago – on May 25, 2021, with the mandate to advise the GST Council on matters concerning capacity-based tax levy and Special Composition Scheme in certain sectors, as well as casino, horse racing, lottery, online gaming and online betting in India.

“Governments, several industries, stakeholders and the societies are to be involved in the operation of the casinos, race courses, and online gaming. Keeping all aspects in mind and considering the views of all stakeholders, we would decide the rates and other related matters,” CM Sangma promised.

According to some media publications, the GoM has already submitted its recommendations to the Union Minister of Finance and Head of the GST Council Nirmala Sitharaman. As per the same reports, the GoM advises all gaming and betting activities to be levied at 28 percent GST applicable to the Gross Gaming Revenue (GGR), and not to the full transaction or betting amount. However, not all media reports agree on what the recommended taxation base would be and the matter is still unclear.

As of the moment, online skill gaming platforms are paying 18 percent GST over their GGR, or their trading margin or profit, while the prize pools collected to be distributed among winners remain GST free. Games involving gambling and betting are levied at 28 percent, applicable to the full transaction or ticket value in the cases of land-based casinos, horse race clubs and lottery.

At the same time, the Indian income tax legislation is levying all winnings from gaming, gambling and betting at 30 percent plus applicable surcharges and Health and Education Cess.

Stakeholders Concerned of Possible Overtaxation

A number of industry and public stakeholders have been expressing concerns that an eventual hike in GST rate, especially if applied over the full transaction amounts, in combination to the high income tax applied to earnings from gaming, can make the Indian gaming industry unsustainable. As a result, there will be a surge in illegal and black market gambling, as well as an inflow of users to offshore platforms offering cricket betting tips, sportsbooks and gambling, leading to a sharp decrease in taxation revenues.

Historically, such concerns are well grounded if we take a look at the effects that GST levy produced over the horse racing industry after the highest rate slab of 28 percent was introduced on the full transaction values and turnovers of turf clubs in 2017.

- Advertisement -

Before GST introduction, the combined turnover of India’s three biggest turf clubs – the ones in Bangalore, Hyderabad, and Calcutta, amounted to ₹3,482 crore for the Financial Year of 2016-2017. After GST levy was applied, the combined turnover of the three race courses dropped threefold to ₹1,193 crore. Taxation revenues fell from ₹389 crore in FY2017 to ₹261 crore in FY2020.

Similarly, the average tax contribution of a land-based casino dropped from ₹1.8 crore in FY 2017 to ₹0.72 crore in FY2022.

- Advertisement - 10crirc

Some experts are particularly concerned that placing skill- and chance-based gaming under the same GST bracket will be hurtful to the homegrown gaming industry.

- Advertisement - 10crirc

“Keeping game of skill and game of chance at par and taxing both the games at sin rate of 28% will be detrimental to the nascent Indian online gaming sector,” L Badri Narayanan, Executive Partner at Lakshimkumaran and Sridharan Attorneys, said.

“It is important for the GST Council to adopt appropriate GST rate and valuation mechanism. The well-established legal jurisprudence of the Supreme Court treating game of skill different from game of chance, should be taken into account by the Council before determining GST rates and valuation mechanism,” Narayanan added.

Ministerial Panel Recommends 28 Percent GST on Gaming, Valuation Rules Still Not Clear

The Ministerial Panel tasked to examine Goods and Services Tax (GST) rate, applicability and valuation issues relating to gaming has voted to recommend to the GST Council a uniform 28 percent levy on all concerned activities. At the same time, the applicable valuation rules concerning what the base for GST levy would be remain unclear.

The special Group of Ministers (GoM) under the lead of the Chief Minister of Meghalaya Conrad K. Sangma was established during the 43rd meeting of the GST Council one year ago – on May 25, 2021, with the mandate to advise the GST Council on matters concerning capacity-based tax levy and Special Composition Scheme in certain sectors, as well as casino, horse racing, lottery, online gaming and online betting in India.

“Governments, several industries, stakeholders and the societies are to be involved in the operation of the casinos, race courses, and online gaming. Keeping all aspects in mind and considering the views of all stakeholders, we would decide the rates and other related matters,” CM Sangma promised.

According to some media publications, the GoM has already submitted its recommendations to the Union Minister of Finance and Head of the GST Council Nirmala Sitharaman. As per the same reports, the GoM advises all gaming and betting activities to be levied at 28 percent GST applicable to the Gross Gaming Revenue (GGR), and not to the full transaction or betting amount. However, not all media reports agree on what the recommended taxation base would be and the matter is still unclear.

As of the moment, online skill gaming platforms are paying 18 percent GST over their GGR, or their trading margin or profit, while the prize pools collected to be distributed among winners remain GST free. Games involving gambling and betting are levied at 28 percent, applicable to the full transaction or ticket value in the cases of land-based casinos, horse race clubs and lottery.

At the same time, the Indian income tax legislation is levying all winnings from gaming, gambling and betting at 30 percent plus applicable surcharges and Health and Education Cess.

Stakeholders Concerned of Possible Overtaxation

A number of industry and public stakeholders have been expressing concerns that an eventual hike in GST rate, especially if applied over the full transaction amounts, in combination to the high income tax applied to earnings from gaming, can make the Indian gaming industry unsustainable. As a result, there will be a surge in illegal and black market gambling, as well as an inflow of users to offshore platforms offering cricket betting tips, sportsbooks and gambling, leading to a sharp decrease in taxation revenues.

Historically, such concerns are well grounded if we take a look at the effects that GST levy produced over the horse racing industry after the highest rate slab of 28 percent was introduced on the full transaction values and turnovers of turf clubs in 2017.

Before GST introduction, the combined turnover of India’s three biggest turf clubs – the ones in Bangalore, Hyderabad, and Calcutta, amounted to ₹3,482 crore for the Financial Year of 2016-2017. After GST levy was applied, the combined turnover of the three race courses dropped threefold to ₹1,193 crore. Taxation revenues fell from ₹389 crore in FY2017 to ₹261 crore in FY2020.

Similarly, the average tax contribution of a land-based casino dropped from ₹1.8 crore in FY 2017 to ₹0.72 crore in FY2022.

Some experts are particularly concerned that placing skill- and chance-based gaming under the same GST bracket will be hurtful to the homegrown gaming industry.

“Keeping game of skill and game of chance at par and taxing both the games at sin rate of 28% will be detrimental to the nascent Indian online gaming sector,” L Badri Narayanan, Executive Partner at Lakshimkumaran and Sridharan Attorneys, said.

“It is important for the GST Council to adopt appropriate GST rate and valuation mechanism. The well-established legal jurisprudence of the Supreme Court treating game of skill different from game of chance, should be taken into account by the Council before determining GST rates and valuation mechanism,” Narayanan added.

Ministerial Panel Recommends 28 Percent GST on Gaming, Valuation Rules Still Not Clear

The Ministerial Panel tasked to examine Goods and Services Tax (GST) rate, applicability and valuation issues relating to gaming has voted to recommend to the GST Council a uniform 28 percent levy on all concerned activities. At the same time, the applicable valuation rules concerning what the base for GST levy would be remain unclear.

The special Group of Ministers (GoM) under the lead of the Chief Minister of Meghalaya Conrad K. Sangma was established during the 43rd meeting of the GST Council one year ago – on May 25, 2021, with the mandate to advise the GST Council on matters concerning capacity-based tax levy and Special Composition Scheme in certain sectors, as well as casino, horse racing, lottery, online gaming and online betting in India.

“Governments, several industries, stakeholders and the societies are to be involved in the operation of the casinos, race courses, and online gaming. Keeping all aspects in mind and considering the views of all stakeholders, we would decide the rates and other related matters,” CM Sangma promised.

According to some media publications, the GoM has already submitted its recommendations to the Union Minister of Finance and Head of the GST Council Nirmala Sitharaman. As per the same reports, the GoM advises all gaming and betting activities to be levied at 28 percent GST applicable to the Gross Gaming Revenue (GGR), and not to the full transaction or betting amount. However, not all media reports agree on what the recommended taxation base would be and the matter is still unclear.

As of the moment, online skill gaming platforms are paying 18 percent GST over their GGR, or their trading margin or profit, while the prize pools collected to be distributed among winners remain GST free. Games involving gambling and betting are levied at 28 percent, applicable to the full transaction or ticket value in the cases of land-based casinos, horse race clubs and lottery.

At the same time, the Indian income tax legislation is levying all winnings from gaming, gambling and betting at 30 percent plus applicable surcharges and Health and Education Cess.

Stakeholders Concerned of Possible Overtaxation

A number of industry and public stakeholders have been expressing concerns that an eventual hike in GST rate, especially if applied over the full transaction amounts, in combination to the high income tax applied to earnings from gaming, can make the Indian gaming industry unsustainable. As a result, there will be a surge in illegal and black market gambling, as well as an inflow of users to offshore platforms offering cricket betting tips, sportsbooks and gambling, leading to a sharp decrease in taxation revenues.

Historically, such concerns are well grounded if we take a look at the effects that GST levy produced over the horse racing industry after the highest rate slab of 28 percent was introduced on the full transaction values and turnovers of turf clubs in 2017.

Before GST introduction, the combined turnover of India’s three biggest turf clubs – the ones in Bangalore, Hyderabad, and Calcutta, amounted to ₹3,482 crore for the Financial Year of 2016-2017. After GST levy was applied, the combined turnover of the three race courses dropped threefold to ₹1,193 crore. Taxation revenues fell from ₹389 crore in FY2017 to ₹261 crore in FY2020.

Similarly, the average tax contribution of a land-based casino dropped from ₹1.8 crore in FY 2017 to ₹0.72 crore in FY2022.

Some experts are particularly concerned that placing skill- and chance-based gaming under the same GST bracket will be hurtful to the homegrown gaming industry.

“Keeping game of skill and game of chance at par and taxing both the games at sin rate of 28% will be detrimental to the nascent Indian online gaming sector,” L Badri Narayanan, Executive Partner at Lakshimkumaran and Sridharan Attorneys, said.

“It is important for the GST Council to adopt appropriate GST rate and valuation mechanism. The well-established legal jurisprudence of the Supreme Court treating game of skill different from game of chance, should be taken into account by the Council before determining GST rates and valuation mechanism,” Narayanan added.

TRENDING NEWS

EDITORS PICK

Latest article

MUST READ NEWS