Gaming Industry Proposes Different Valuation Method Ahead Of GST Council Meet

Gaming companies are hoping for a revision in how the 28% tax is levied to avoid repetition in tax ahead of the 51st GST Council meeting.

According to some members of the industry, the GST Council should consider imposing a tax on gross gaming revenue while others agree using net deposits as the method of valuation instead of levying a 28% tax on full face value at the start of an individual game.

The 51st Goods and Services Tax Council will be meeting virtually on Aug. 2, less than a month since its last meeting on July 11.

While the GST Council had recommended a 28% levy on the full face value of bets in the case of online gaming, there are still some issues that require clarity, according to Abhishek Jain, national head and partner—indirect tax at KPMG.

According to him, the modus (or manner) of levy, distinction qua (with regard to) casinos, taxation of platform fees, and credit for inputs and payouts are some of the issues that require detailed consideration.

What The Industry Wants

The industry originally sought a mechanism from the government where the tax levy would be on the gross gaming revenue or platform fee.

"It has always been our hope that the GST Council will consider gross gaming revenue as the method of valuation, since we believe that this method would protect the interests of the entire gaming industry—including the MSME sector—while also increasing the revenue generated to the exchequer by 55%," Roland Landers, chief executive officer, All India Gaming Federation, told BQ Prime.

The GST Council's decision, which has since elicited adverse reactions from platforms and players, has included letters and representations to the government from various quarters.

The gaming community wrote to Finance Minister Nirmala Sitharaman, expressing their concerns. Investors representing Indian and foreign investors in the Indian Online Skill Gaming Industry also wrote a letter to Prime Minister Narendra Modi.

Use Of Tax Deposits

The industry has said it's concerned that the new tax levy will enforce repetitive taxation.

Currently, the 28% tax levy is not in effect, and platforms charge 18% on their platform fees.

Let's take an example to understand repetitive taxation.

Z adds Rs 1,000 to his online gaming wallet. He bets Rs 1,000 on his first game. He pays 28% tax on the full face value of the bet at the outset. He retains Rs 500 at the end of the game but loses the rest.

Z places his remaining Rs 500 in his second bet on a new game. He will be liable to pay 28% tax on the full face value of the bet again. This leaves Z paying repetitively at the start of every game.

The industry has proposed that they would be willing to accept a tax on deposits instead of the levy at the start of a game.

"...if the GST Council is considering deposits as their method of valuation, we believe that valuation on net deposits might also be an equitable solution that could contribute increased revenue to the exchequer and is a solution that would be acceptable to the industry as a whole," Landers said.

The repetitive tax also raises the question of parity among casinos, online gaming, and horse racing, which were discussed by the Group of Ministers. In the case of casinos, the tax is to be applied on the face value of chips purchased at the beginning, as the chips cannot be individually tracked thereafter.

However, the proposal to levy a tax on deposits is not uniform across platforms of all sizes.

E-Gaming Federation and FIFS (Federation of Indian Fantasy Sports), representing 50 Indian gaming companies across all skill gaming formats, stand firm on tax on GGR.

“Any alternative on valuation, whether on entry fees or deposits, will severely impact the industry across the spectrum, along with 40 crore Indian gamers,” they said, further adding,

They claim the 28% GST on deposits will be a 350% increase to the GST levied, leading to the closure of most of the smaller operators and necessitating major restructuring across the industry to survive, setting the larger operators back by several years.

"There is going to be a major impact on the industry, and the industry has been requesting for the government to reconsider the Council decision. The industry has always asked for the mechanism of levy to be the GGR or the platform fee," according to Bipin Sapra, indirect tax policy leader at EY.

If the mechanism of levy is on the deposits in the account of the player, it would ensure parity in how all three games are taxed, said Sapra. However, it remains to be seen how this can be made possible within the ambit of the GST law, he said.