GST Council Approves 28% Tax on Online Gaming, Casinos, and Horse Racing
The Goods and Services Tax (GST) Council has made significant decisions regarding taxation in various sectors. The imposition of a uniform 28% tax on the full “face value” of bets in online gaming, casinos, and horse racing brings them in line with betting and gambling activities. Previously, industry stakeholders had advocated for differential tax treatment based on the distinction between games of skill and games of chance.
In addition, the Council has lowered the service tax on food and beverages consumed at cinema halls from 18% to 5%. Furthermore, there have been changes to the definition of a Sports Utility Vehicle (SUV) to levy a cess on top of the GST rate.
These decisions by the GST Council aim to streamline tax rates and ensure consistency in the taxation of different sectors. It is expected that these changes will have implications for businesses and consumers in the respective industries.
Finance Minister Nirmala Sitharaman has announced that amendments will be made to the GST law to include online gaming and subject it to a tax rate of 28% on the full face value. Currently, online gaming platforms are taxed at 18% on the commission earned from each game, while betting or gambling activities are subject to a 28% GST rate. Horse racing bets are also taxed at 28% based on the bet value.
The proposed amendment aims to bring uniformity in taxation by subjecting online gaming to the same 28% GST rate as other forms of betting and gambling. Once the amendment is implemented, online gaming platforms will be required to pay tax at a higher rate on the full face value of the bets. This move aligns with the Council’s decision to treat online gaming on par with other forms of betting and gambling for tax purposes.
The finance ministry has clarified the taxability of online gaming, casinos, and horse racing. According to the ministry, the tax will be levied on the face value of the chips purchased in the case of casinos and on the full value of bets placed with bookmakers or totalisators in the case of racing. Suitable amendments will be made to the law to include online gaming and horse racing as taxable actionable claims in Schedule III.
To study the taxation of fantasy sports and casinos, a Group of Ministers (GoM) led by Conrad Sangma, the Chief Minister of Meghalaya, was formed. The GoM has submitted two reports to the GST Council, which have been taken into consideration for making decisions on the taxability of these activities. These reports likely provided recommendations and insights on how to tax these sectors effectively and fairly within the GST framework.
The first report submitted by the Group of Ministers (GoM) in June 2022 recommended that no distinction should be made between activities based on whether they are games of skill or chance. The report suggested that tax should be levied on the full value of consideration, including the contest entry fee, paid by players for participating in such games. However, this recommendation was asked to be reviewed.
In its second report, the GoM mentioned that it could not reach a consensus on tax rates due to divergent views of certain states. This indicates that there were disagreements among the states regarding the appropriate tax rates for these activities. The differing opinions may have led to further discussions and deliberations within the GoM and the GST Council to arrive at a decision that considers the concerns and perspectives of all stakeholders involved.
After the meeting, Sudhir Mungantiwar, the Maharashtra forest cultural and fisheries minister, announced that the GST Council has decided to eliminate the distinction between games of skill and games of chance for tax purposes in the case of online gaming. This means that online gaming will be taxed uniformly, regardless of whether the game is considered a game of skill or chance.
Additionally, the Council, in its 50th meeting, decided to establish a framework for the establishment of a GST appellate tribunal by August 1. The tribunal will be responsible for resolving GST-related litigation. The tribunal will initially have benches in state capitals, and it will be expanded in a phased manner to ensure wider coverage and accessibility.
In addition to the decisions mentioned earlier, the GST Council approved measures to address issues related to excess input tax credit claims by businesses and to strengthen the registration process to combat fake registrations. These measures aim to prevent misuse and enhance the integrity of the GST system.
However, the Council deferred the implementation of a compensation cess on certain commodities that are prone to evasion, citing challenges in determining their retail sale prices.
Furthermore, the definition of an SUV to attract a cess beyond the GST rate was modified. The current definition includes parameters such as being popularly known as an SUV, having a length of 4 meters or more, an engine capacity of 1,500 cc and above, and an unladed ground clearance of at least 170 mm. These modifications will help in determining the applicability of cess on SUVs accurately.
The GST Council has decided to eliminate the requirement that the vehicle should be popularly seen as an SUV and has emphasized that the ground clearance of 170 mm should apply to an unladen vehicle. This modification provides clarity on the criteria for determining the classification of an SUV to levy a cess beyond the GST rate.
Additionally, the Council has made changes to GST rates for certain goods. The rates have been reduced, clarified, or regularized for specific items. Notably, the rates for uncooked, unfried snack pellets, fish-soluble paste, and imitation zari threads or yarn have been lowered from 18% to 5%. Furthermore, LD slag has been brought in line with blast furnace slag and fly ash, with its rate reduced from 18% to 5%. These adjustments aim to simplify the tax structure and ensure uniformity in rates for these goods.
The GST Council has taken decisions to regularize the taxability of certain items for past periods when there was confusion or duality of rates. This includes the regularisation of taxability for trauma and spine-implants from July 18, 2022, and the taxation of raw cotton from agriculturists to cooperatives. The Council has clarified these tax provisions and stated that taxpayers will not be required to pay retrospectively for the past period of confusion.
Finance Minister Nirmala Sitharaman also mentioned that the compensation due to states has been cleared for those states that have submitted certified claims. Payments to states that are still awaiting submission of statements will be cleared once the necessary information is received. This highlights the government’s commitment to settling outstanding dues and ensuring timely payments to the states.
During the GST Council meeting, the finance ministers of Delhi and Punjab raised concerns regarding the information that will be shared by the Goods and Services Tax Network (GSTN) under the Prevention of Money Laundering Act (PMLA). In response, Revenue Secretary Sanjay Malhotra clarified that the notification issued under Section 66 of the PMLA is unrelated to the GST law.
He emphasized that the requirement to share information is in compliance with the Financial Action Task Force (FATF) standards, and the tax department will be the recipient of this information. This clarification aimed to address any apprehensions and ensure transparency in the process.
