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Betting and gambling games could attract 28 percent GST, could hamper the growth of online gaming industry in India

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GST on online gaming

Highlights:

  • GoM calls for 28% GST on online gaming.
  • The tax will be levied on the entire “face value” or “bet amount” and not on the total transaction value.
  • Currently, services of casino, horse racing and online gaming attract 18% GST.

An empowered group of ministers (GoM) — set up to look into taxation of online gaming, casinos and races — has unanimously proposed a flat 28 per cent goods and services tax (GST) on these activities. The panel of ministers decided that the tax will be levied on the entire “face value” or “bet amount” and not on the total transaction value. Total transaction value includes the prize money, or the net commissions (revenues) that accrue to gaming firms. Currently, services of casino, horse racing and online gaming attract 18% GST.

Other state ministers in the 8-member GoM include Maharashtra Deputy Chief Minister Ajit Pawar, Gujarat Finance Minister Kanubhai Patel, Goa Panchayati Raj Minister Mauvin Godinho, Tamil Nadu Finance Minister P Thiaga Rajan, Uttar Pradesh Finance Minister Suresh Khanna, and Telangana Finance Minister T Harish Rao. State government officials estimate the annual turnover from the gaming services to the tune of Rs 30,000 crore. The GST Council levied a uniform 28 per cent GST on both state-run and state-authorised lotteries. Before that, state-run lotteries attracted 12 per cent GST, while state-authorised lotteries attracted 28 per cent GST.

Govt may impose 28 percent GST on online gaming

The final recommendation on the revised rates is likely to be disclosed in the next week’s meeting of the GoM headed by Meghalaya Chief Minister Conrad Sangma. The GST council will take a final call after that. The meeting took place yesterday where the members discussed the valuation of services provided by casinos and online gaming. There was a broad consensus on a flat 28% tax rate, however, there was no consensus regarding gross gaming revenue or on the basis of per transaction.

Experts believe that the proposed move will discard the industry’s arguments of treating games of skill differently from games of chance. They say that keeping games of skill and games of chance at par and taxing both games at a sin rate of 28 per cent will be detrimental to the nascent Indian online gaming sector.

“The online gaming industry is at a deflection point where the proposed regulatory changes in the GST structure could lead to significant disruption. Further, the valuation mechanism proposed for this increased tax rate is also going to impact their cash flows and business viability. With the industry being at this nascent stage, it is arguably recommended that a favourable regulatory regime could provide the required impetus to the overall sector,” said Saurabh Agrawal, tax partner, EY.

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