While the online gaming sector anticipates a re-evaluation of the 28% goods and services tax (GST) imposed on it, the GST Council is not expected to revoke the tax. Sources indicate that the government believes the tax has been widely accepted by industry participants, and tax collections are also performing satisfactorily. However, concerns regarding past GST notices and payments have raised the possibility of the issue being reconsidered in the future.
A source familiar with the situation stated that it is improbable for the 28% GST to be repealed, given the apparent acceptance of both the industry and customers, evident from the consistent growth in tax revenues from online gaming. However, there is a possibility of revisiting the issue of GST notices related to past payments, as numerous companies express concerns about settling these demands. A second source mentioned that several companies have filed writ petitions regarding this matter, which are now awaiting a ruling from the Supreme Court.
At the same time, companies have highlighted that if they receive notices for past years, the funds have already been disbursed to players, making it challenging for them to make payments. These matters are scheduled to be discussed by the GST Council after the General Elections and the formation of the new Union government. Sources suggest that the Council meeting is likely to occur either towards the end of June or after the Union Budget in late July.
The Council had previously announced its intention to re-evaluate the 28% GST imposed on online gaming, casinos, and horse racing after a six-month period. This new tax regime was implemented from October 1, causing concern among many companies about its potential negative impact on players due to the substantial tax burden. Industry players and experts are optimistic about finding an alternative to the high 28% tax rate, which could facilitate further growth in the sector. During a session led by Chief Justice of India DY Chandrachud, Baazi Networks Private Limited, the parent company of Baazi Games, challenged the notices they had received.
Representatives of gaming firms argued that despite government assurances of no immediate action, there could still be forthcoming orders. Additional Solicitor General Venkatraman, representing the GST department, urged lawyers to collaborate and resolve the issue. Chief Justice indicated that the court would address the plea after the summer break and advised Charanya Lakshmikumara, representing multiple gaming companies, to organize an email meeting in July 2024 to schedule hearing dates.
The Supreme Court is currently dealing with 30 petitions from online real money gaming firms, challenging retrospective GST notices demanding payments worth thousands of crores, calculated at 28% of the bet’s face value.
In December 2023, the Supreme Court rejected the request to suspend these notices but agreed to consider the plea.
Among these petitions are 27 transferred from various high courts, two original petitions by Head Digital and Play Games24x7, and an appeal from the GST department challenging a Karnataka High Court decision.
As of December 2023, these gaming companies received 71 show-cause notices accusing them of GST evasion totaling Rs 1.12 lakh crore in 2022-23 and the initial seven months of 2023-24, excluding interest and penalties. Under section 74, which allows penalties of up to 100 percent of the tax demand, the total could exceed Rs 2.3 lakh crore, including interest.
Since October 1, 2023, the GST Council has imposed a 28 percent GST on the full face value of online gaming bets, with a promise to review after six months. The industry advocates for calculating the 28 percent GST based on gross gaming revenue rather than the bet’s face value.
The gaming companies encountered a significant setback when the GST Council applied the tax retroactively. According to the Council’s interpretation, all online games involving bets played between August 2017 and October 1, 2023, regardless of skill or chance, are subject to a 28% GST on the entire bet value, as they are classified as gambling. Baazi Games and All India Gaming Federation (AIGF) have refrained from providing comments on this issue.
Meanwhile, Dr. Aruna Sharma, a Policy Advisor, Practitioner Development Economist, and former Secretary to the Government of India, remarked, “It is a positive development that multiple litigations in various courts have been consolidated in the Supreme Court to bring uniformity and provide a credible solution. The key issue to be resolved is not just determining the GST rate but also clarifying its retroactive application and, importantly, defining what falls under its tax ambit. The earnings of players, after TDS deductions, should remain exempt from taxation, while GST should focus solely on the earnings of developers and platforms.”
In short, The Supreme Court is set to deliberate on petitions challenging the 28% GST on online gaming in July, amid ongoing concerns about past GST notices and payments. The gaming industry hopes for clarity and a possible revision of the tax structure to ensure fair taxation and sustainable growth.
