The hullabaloo about the 50th GST Council’s recommendation to impose GST at 28 per cent on the face value of chips purchased in casinos and bets placed in the case of horse racing and online gaming does not seem to die down. The All-India Gaming Federation (AIGF), the industry body for Online Skill Gaming in India, has stated that the decision will have ‘devastating implications’. They have represented that they are ‘willing’ to pay 28 per cent GST on gross gaming revenue (GGR) per platform fee; they will have no choice but to pass the GST burden to the ‘400 million Indians’ who ‘are already required to pay 30 per cent income tax on winnings’, and they will not be able to bear such a large increase in cost, which will lead them to shift to black market operators. AIGF is playing to the gallery here. While 400 million Indians may indeed be gamers, a much smaller number will actually wager. An indirect tax is always borne by the customers, be it from gaming or any other activity. The Federation of Indian Fantasy Sports (FIFS), another industry body, has expressed similar outrage.
Rajeev Chandrasekhar, the minister of state for electronics and information technology (Meity), has gone on record to state that he will ‘request the GST Council for consideration on the new regulatory framework’. Karnataka Minister Krishna Byra Gowda, who participated in the Council meeting, has, on the contrary, stated that the 28 per cent GST rate on the full face value was ‘eminently justified’.
Unfortunately, in the noise and din, the facts of the matter at hand have been lost sight of.
The CGST Act unambiguously states that GST is levied on goods, which includes actionable claims. Entry 6 of Schedule III of the CGST Act specifies that lottery, betting, and gambling are taxable as actionable claims. There was or is no issue regarding the lottery, betting, or gambling; these activities paid/pay 28 per cent on the full value of goods. Schedule III makes no specific mention of casinos, race clubs, or online gaming.
There was no uniform practice. Turf clubs were paying 28 per cent on the face value of the bet or amount paid into the totalizator. Casinos were also paying 28 per cent, but on GGR; online gaming companies were also paying on GGR, but at 18 per cent.
The department’s stand as regards online gaming has been that 28 per cent was always payable, and on the face value of the bet. This led to disputes, show-cause notices, and court cases. Distinctions were drawn between games of skill or chance, and appeals filed and pending are at various levels. In other words, there was a lack of clarity, and confusion prevailed. Obviously, there were substantial revenue implications, with the gaming market being estimated to exceed US$ 8.6 billion, according to a Deloitte study carried out at the behest of FIFS.
A Group of Ministers (GoM) constituted by the Council as early as 2020 had recommended a flat 28 per cent on casinos, racecourses, and online gaming and on the full value. Since concerns were raised, the GoM was mandated to relook at the issue. The long confabulations (the Council perhaps has not debated on any other issue as much as it has on online gaming) led to more confusion—so much so that the GoM, which earlier had given a categorical recommendation, now opined that in the absence of any consensus, the Council may take a decision. We must view the Council’s recommendation in this context.
Thus, the Council has in effect, unanimously, endorsed the stand of the Central Board of Indirect Taxes and Customs that there is no distinction between games of skill or chance and that these activities are always taxable at 28 per cent and on their full value. What has also been said is that what the GST Council is now recommending is clarificatory in nature, and the levy is due to be paid from 2017. What this means is that the casinos and online gaming industry will be expected to pay for the period from 2017 an amount estimated to be more than Rs 20,000 crore in taxes. Collecting taxes for the past is certainly going to be challenging; there should be no problem going forward.
Having said that, the Council has also recommended amendments to the law to include the very same activities, which were always held to be within the ambit of the GST law. It would be interesting to see if the amendments to include the activities of online gaming and horse racing within Schedule III as actionable claims would mean that such amendments, which are normally prospective, would be retrospective to give effect to the Council’s recommendation.
There are several nuances to the issue. The AIGF has, for instance, now raised the issue of whether the levy will be on ‘repetitive taxation,’ defined as gamers using their winning money to play another game, and if so, would they be taxed again? The answer is obvious. So, the dust has not settled on this. The Parliament and the state legislatures will have to give their nod, and the CBIC will have to issue clarifying circulars.
The GST Council’s recommendation or clarification fills in a critical policy gap where the lack of clarity /understanding was hurting the industry and the department. While the purpose of taxation is to raise revenue (‘the price we pay for a civilised society’), a tax on online gaming should be viewed as a means of seeking to change social behaviour. There are enough anecdotal instances of gambling destroying lives and families. Krishna Byre Gowda has in fact suggested that a GST compensation cess should also be imposed on this activity.
The clarification answers one essential requirement of a good tax system: certainty. Tax administration will have to ensure that the tax is also sustainable, meaning that the base is not eroded as constantly alleged by the industry.
(The writer is the former chairman of the Central Board of Indirect Taxes and Customs)