Indian tax body leaves operators in limbo – Gaming regulation
Industry experts are sounding alarms over a significant lack of “clarity” surrounding gaming taxation in India, especially after the recent Goods and Services Tax (GST) council meeting neglected this critical issue.
Stakeholders within the Indian gaming sector had anticipated that the council would re-evaluate the contentious 28% tax imposed on online gambling, casino gaming, and horse race betting. This meeting, held on June 22, was expected to discuss various tax rates and regulations across different industries.
However, Finance Minister Nirmala Sitharaman confirmed post-meeting that the gaming tax “wasn’t up for discussion,” leaving many industry participants in a state of uncertainty.
Tax Implications for Operators
The current tax model applies to the full transaction value of bets, rather than just the gross gaming revenue, resulting in a turnover-based tax that many view as overly burdensome.
Dr. Aruna Sharma, an economist and former government official, stated, “There is no clear direction or relief regarding the taxation of the entire transaction value instead of simply the platform’s revenue. This high rate of taxation is likely to be passed down to the players.”
“One potential recourse is for the Supreme Court to mandate that GST be levied solely on the earnings of the platform, not on the total stake in real money games,” she added.
The tax regime officially commenced in October 2023, with many operators expecting a review at the six-month mark to alleviate some of the pressure.
Prospects for Relief
A new clause, Section 11A, could pave the way for some relief if passed by Parliament. This provision would allow companies across various sectors to contest retrospective tax demands.
Notably, the Supreme Court recently agreed to hear multiple petitions challenging such retrospective demands from gaming firms.
Dr. Sharma remarked positively on the situation, stating, “The Tax Rationalisation Group of Ministers committee has been reconstituted and may review the tax on online gaming.”
“This amendment to Section 11A now permits the waiver of retrospective tax based on ambiguities affecting both state and central governments, including penalties and interest on such dues,” she explained.
A Major Disappointment for the Industry
Despite some rays of hope, the 28% flat tax rate continues to leave the gaming industry in limbo.
Manish Mishra, a partner at JSA Advocates and Solicitors, expressed frustration over the absence of discussions concerning online gaming, calling it a “major disappointment.”
Rajat Bose, a partner at Shardul Amarchand Mangaldas & Co Advocates & Solicitors, articulated the broader concerns of the industry, saying, “The online gaming sector was eager for the GST council meeting, hoping for dialogue around their pressing taxation concerns. Instead, they found their issues unaddressed on the agenda. The industry is now left waiting for the next meeting.”
Future Discussions
However, there’s no guarantee when the GST council will revisit these issues. Sitharaman mentioned that the council ran out of time to cover various agenda items, suggesting these discussions might take place in an upcoming meeting, potentially before the end of August.
Yet, she also clarified that the gaming tax “was not on the agenda” for the previous session.
Challenges Ahead for Operators
A recent joint report by Ernst & Young and the US-India Strategic Partnership Forum outlines significant challenges facing gaming operators in India.
The report reveals that the Indian gaming sector has drawn $2.6 billion in foreign direct investment since 2019; however, no new investments have materialized since the introduction of the current tax regime.
“Some firms have reported a total withdrawal of global marquee investors right at the onset of the new GST regime,” the report highlighted.
For instance, Super Group, which operates the Betway sportsbook and Spin online casino, exited the Indian market last October, marking a significant shift in the landscape.
This tax rate represents the second major alteration to India’s online gambling market within a year, following the introduction of new regulations to govern online gambling in January 2023.
