28% GST on online gaming: Amendments bring more clarity but industry remains worried

With the Lok Sabha on Friday passing the amendments to the Central and Integrated Goods and Services Tax Act, it is likely that 28 per cent GST on online gaming, horse racing and casinos is likely to be implemented from October 1. Experts note that the amendments give more clarity to the industry on the tax liability although there remained considerable worry about the impact of the move on the online gaming sector.

Tanushree Roy, Director–Indirect Taxation at Nangia Andersen India, noted that the amendment aims to provide clear definitions for terms such as ‘online gaming’, ‘online money gaming’, ‘specified actionable claim’ and ‘virtual digital asset’. “By doing so, it brings much-needed clarity to the interpretation of these terms under GST and helps determine the taxability of activities such as casinos, horse racing, and online gaming under GST,” Roy said.

 As a result of this amendment, betting, casinos, gambling, horse racing, lottery, and online money gaming will now be classified as ‘specified actionable claim’. “Consequently, the suppliers of such specified actionable claim will be liable to discharge GST. Additionally, any person supplying online money gaming services from a location outside India to an individual in India is now required to register for GST compulsorily,” she said.

The Bill, tabled by Union Finance Minister Nirmala Sitharaman on Friday, seeks to amend Section 2 of the Central GST Act to provide that ‘online gaming’ means offering of a game on the internet or an electronic network and includes online money gaming.

It also defines online money gaming as “online gaming in which players pay or deposit money or money's worth, including virtual digital assets, in the expectation of winning money or money's worth, including virtual digital assets, in any event including game, scheme, competition or any other activity or process, whether or not its outcome or performance is based on skill, chance or both and whether the same is permissible or otherwise under any other law for the time being in force”.

It has also proposed amending clause (17) of section 2 of Integrated GST Act to exclude online money gaming from the definition of Online Information and Data Access or Retrieval (OIDAR) services. It has also proposed insertion of a new section, section 14A in the IGST Act, to provide for special provision for online money gaming supplied by a person located outside the taxable territory to a person located in India.

Saurabh Agarwal, Tax Partner, EY said the proposed amendments to the GST law would provide much-needed clarity to the online gaming industry. “By defining what constitutes online gaming, who is liable to pay GST, and how the GST is to be calculated, the amendments would help to eliminate uncertainty and ambiguity. This would be a welcome development for the industry, which has been grappling with legal uncertainty for some time,” he said, adding that the amendments would also help to defend past litigations.

Rajat Bose, Partner, Shardul Amarchand Mangaldas & Co however, said there could be judicial challenges. “The taxation is imposed on a higher amount that may not be actually recorded as revenue for a gaming company. Given that the above is in the teeth of Supreme Court precedents and provisions of the GST laws, judicial challenges can be forecast in writ jurisdiction, in both the central and state legislation,” he said. 

With some online gaming companies already announcing plans for layoffs or closing down operations, the sector remained cautious about the impact of the amendments. “The repercussions of this abrupt change are already visible, with prominent platforms announcing layoffs and start-ups contemplating closure. More such instances are anticipated in the coming months,” said Kriti Singh, Chief of Staff and Lead Online Gaming, The Dialogue.

While many companies are likely to shift offshore, there are also concerns that it could lead to the rise of illegal gambling activities by offshore firms.

Also Read: 28% GST on online gaming, casinos: Lok Sabha passes amendments to Central, Integrated GST laws