The Goods and Services Tax (GST) is a significant tax system in India that affects various parts of the economy, including online gaming. In July and August of 2023, there were two important meetings (the 50th and 51st GST Council meetings) that made important changes to how online gaming is taxed in the country. These changes set a tax rate of 28%, which received mixed reactions from people involved in the industry. Let’s dive deeper into what these changes mean and how they will impact the online gaming industry.
- During the 50th GST Council meeting on July 11, 2023, several steps were taken to make it easier for businesses to follow the GST rules.
- This included decisions about how casinos, racecourses, and online games would be taxed. They decided to tax these activities at a rate of 28%.
- For online gaming, there were some concerns, including worries that this high tax rate might harm the industry, especially for startups.
The 51st Council meeting on August 2, 2023, focused on the taxation of casinos, online gaming, and horse racing. They decided that GST would be applied to certain types of claims made in casinos right at the entry point. For online gaming, here are the key points from the 50th GST Council meeting:
1. They agreed with the recommendations from a group of experts about how to tax online gaming, racecourses, and similar activities.
2. They added online gaming and horse racing to a specific part of the GST law, making them subject to a 28% tax rate.
3. They said that this tax would be applied to the full value of the chips people buy in casinos or the total value of bets placed in horse racing and online games, without considering any fees.
4. They also made it clear that both skill-based and luck-based online games would be taxed in the same way.
5. Importantly, they decided that this 28% GST rate wouldn’t be applied to past transactions; it would start from a specific date.
To put these changes into action, they needed to quickly make amendments to the GST law at the national level, and individual states would also need to change their laws to start taxing online gaming from October 1, 2023.
Online gaming’s GST implications – Highlights from the 51st GST Council gathering on August 3, 2023:
1. Amendments in GST Laws: The GST Council approved changes in the CGST Act, 2017, and IGST Act, 2017, including Schedule III. These changes clarify how taxation will apply to various activities, including casinos, horse racing, and online gaming.
2. Tax on Foreign Suppliers: The IGST Act will now specify that suppliers located outside India who provide online money gaming to anyone in India must pay GST. These foreign suppliers will need to register in India, and a separate procedure will be established for their registration.
3. GST on Online Gaming and Casinos: GST will be applied to the value of online gaming and the transfer of actionable claims in casinos at the point of entry. Games of chance and games of skill will be treated equally for GST purposes, with clear definitions provided in the law. Specific rules will be created for valuing online gaming and actionable claims in casinos.
4. GST on Deposits: A 28% GST rate will apply to the actual cash or equivalent deposits made by players on online platforms to start a game, not to the winnings that are reinvested.
5. Taxation of Virtual Digital Assets (VDAs): GST will also be applicable to payments received and winnings paid in Virtual Digital Assets (VDAs) by online gaming companies and casinos. This includes both overseas and domestic companies that accept and make payments in VDAs such as cryptocurrency.
6. Implementation Date: These amendments and the enforcement of GST on online activities are expected to be completed by October 1, 2023.
7. Uniform Taxation: All online gaming activities, whether based on chance or skill, will be taxed at the same 28% rate.
8. Legislative Changes: Bills to implement these decisions were introduced in Parliament on August 11, 2023, and were passed as Acts No. 30 and 31 on August 18, 2023.
9. State Amendments: States are also expected to make necessary amendments to their GST laws in the coming months during legislative sessions or through ordinances.
In summary, the 51st GST Council meeting introduced significant changes to the taxation of online gaming in India. These changes aim to simplify taxation but have raised concerns among stakeholders about their potential impact on the industry. The new tax rate of 28% is set to take effect from October 1, 2023, and is expected to generate approximately Rs. 2000 crore in tax revenue. The coming months will be crucial in assessing the actual consequences of these legislative changes.