Introduction
In its 51st meeting, the GST Council made significant recommendations for amendments in the CGST Act 2017 and IGST Act 2017. These changes are aimed at providing clarity regarding the taxation of supplies in casinos, horse racing, and online gaming. On 11th June, 2023 the Goods and service tax council in its 50th meeting, decided to levy uniform GST 28% tax on full face value for online gaming. This came as a major shock to the gaming industry.
GST council
The Kelkar Task Force on Indirect Taxes originally suggested the notion of a national GST in India in 2000. With a uniform system that would make compliance easier, lessen tax cascading, and encourage economic integration, the goal was to replace the current complicated and fragmented tax structure. The First Discussion Paper, created by the Empowered Committee of State Finance Ministers, was published in 2009. The 2011 introduction of the Constitution Amendment Bill was met with opposition on matters such as state compensation.
The 2014 Constitution (122nd Amendment) Bill was presented in Parliament after years of deliberation and discussions between the Central and State Governments. The Constitution will be changed by the bill to allow for the establishment of the GST. The Bill gained the necessary number of State ratifications, received the President’s assent on September 8, 2016, and was therefore passed into law as the 101st Constitution Amendment Act, 2016.
Article 279(1) was added in Indian constitution after the amendment which talks about GST Council. GST Council is a constitutional body that plays a vital role in decision-making related to the GST system in India.
Income under Income Tax Act,1961
Income is defined under section 2(24)(ix) of the IT act,1961.
It states that any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.
Explanation. —For the purposes of this sub-clause, —
(i) “lottery” includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called;
(ii) “card game and other game of any sort” includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game.
In case CIT vs G.R. Karthikeyan, the assesse participated in a ‘car rally’, it was contest and not a race, the issue in fact arose whether the ‘prize’ amounted to income under section 2(24) of income tax act, 1961. The apex court decided that the term ‘other game of any sort’ is not restricted to gambling alone and ‘winning’ does not follow the money from non-gambling is not considered income.
Approval of amendment in CGST and IGST act,2017 applies to Casinos, Horse racing, Online gaming
Therefore, any income in game of chance or skill, both are under the purview of section 2(24) of income act,1961.
The CGST (Amendment) Bill/Act, 2023’s main points
The CGST (Amendment) Bill, 2023 was presented in the Lok Sabha on August 11, and on August 18, it became Act No. 30 of 2023.
The Act makes the following provisions:
- It defines some actionable claims [section 2 (102A)], online gaming [section 2 (80A)], and online gambling for money. likewise [section 2 (117A)] virtual digital asset
- It modifies the section 2(105) definition of “supplier” to make it clear who is the supplier in the case of the provision of a specific actionable claim.
- It stipulates that anyone who delivers online real money gaming from a location outside of India to a person inside India must register (section 24).
- Lottery, betting, and gaming have been replaced under Schedule III by “specified actionable claims.”
Online Gaming in India
In terms of App downloads, India is the largest mobile gaming market in the world. Online gaming revenue increased 39% to 1.6 billion in 2022. By FY25, the sector is projected to develop by 20% to reach INR 231 billion. With 180 million users, India has the largest fantasy sports market. India has 421 million internet gamers as of 2022, with that number rising to 442 million by 2023. In the last five years, domestic and international investors have given Indian gaming $2.8 Billion. A 380% increase in funding was made from 2019 to 2020. Game 24X7, Dream11, and Mobile Premier League are three unicorns in the gaming industry that came from India.
India recorded about 421 million online gamers in the year 2022. This was an eight percent growth from the previous year and is likely to reach over 442 million by 2023. About 90 million of these gamers reportedly paid for online games that year.
Number of online gamers in India from 2017-2023
market of online gaming, India’s already quickly increasing gaming sector reached a value of 2.6 billion US dollars by the end of the fiscal year 2022. One of the areas of the Indian media and entertainment market that is expanding the quickest is the gaming business. According to industry assessments, this market might reach a value of over $8 billion by the financial year 2027 at a CAGR of 27%.
There are two types of Online gaming:
A. Game of chance: The result of this games is not based on intellect or skill rather purely depended on chance of luck.
B. Game of skill: These types of games require practice, skill, talent and luck is not in question. It is based on merit.
Impact on online gaming industry:
The stakeholders in the business also believe that the high GST rate has a detrimental effect on customers. Players may find it more expensive to play online games due to the higher tax burden, which may prompt them to look for alternatives like offshore or illegal sites that do not collect GST or have cheaper rates. A number of negative effects, such as an increase in gambling addiction and a decrease in government income, might result from such a situation.
Government’s Reasoning:
Youth Gambling Prevention: The government justifies its decision to impose a 28% GST on online gaming by expressing concern about preventing gambling, especially among the younger population. They argue that this tax rate is intended to discourage excessive gambling, even though it differs from international norms where GST typically applies to platform fees and gross gaming revenue (GGR), not the total wagered amount.
State Administration Opposition:
2. State Disagreement: Several state administrations, notably Goa and Karnataka, have voiced their dissent regarding this decision. They argue that imposing a 28% tax on the gaming industry could have adverse effects on foreign direct investments (FDI) and hinder the sector’s growth, potentially jeopardizing India’s goal of achieving a $1 trillion digital economy by 2025.
Conclusion:
Though the GST tax of 28% levied on online gaming may come as a major shock to the industry, nut it was done to discourage gambling, the industry stakeholder oppose to it saying it might act as a catalyst to the illegal gambling industry. And the step taken by government is unconstitutional and targets a particular sector and attempting to hurdle its growth.
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