50th GST Council Meeting: 28% Tax on Online Gaming, horse racing, and casinos

The GST Council's 50th meeting was held in Delhi on July 11, 2023, under the chairmanship of the Union Finance & Corporate Affairs Minister, Smt. Nirmala Sitharaman. The Goods and Services Tax (GST) Council has announced changes in taxation for the online gaming industry. The GST Council has decided that online gaming, casinos, and horse racing will be taxed at 28% at the entry point on the total face value of bets. This article will examine the GST council's decision on a 28% Tax on Online Gaming, horse racing, and casinos.

Synopsis of 50th GST Council Meeting

The 50th GST Council meeting covered three essential matters under the GST law. The synopsis of the 50th GST Council Meeting is as follows:

GST Rate decisions were made on goods and services, clarifications were issued, and rate regularizations were undertaken.
Secondly, the recommendations of various GoMs were discussed.
The third matter involved clarifying that the compensation cess dues have been paid to the states that have submitted AG-certified claims, and the states yet to submit their AG certificates will also be settled on submission of the same.
Changes will be made in the GST law to state that these three supplies are not actionable claims, like that of lottery and betting.
Rates were brought down from 18 to 5% on uncooked and unfried snacks.
Exemption on GST for satellite launch services provided by private organizations.

Current GST Rates for Online Gaming

Under the GST regime, online gaming is taxed differently based on the nature of the games. For skilled games without betting, GST is charged at 18%. On the other hand, for games of chance, such as betting and gambling, GST is charged at a higher rate of 28%.

GST Council Clarified GST on online gaming, casinos, and horse racing

The Goods and Services Tax (GST) Council ended a years-long debate on the tax treatment of online gaming, casinos, and horse racing. GST Council provided the much-awaited clarity on the following topics:

Game of chance vs. Game of skill
Value of supply (i.e., GST to be levied on platform fee or pool money/total contribution)
Rate of GST (18% or 28%)

Whether they involve skill-based or chance-based games, online betting and gambling are subject to a 28% GST. Conversely, other games are taxed 18% based on their gross gaming revenue (GGR).

Background

A Group of Ministers (GoM) was constituted to examine the issues related to taxation on casinos, horse racing, and online gaming. The GoM submitted its first report in June 2022, and it was placed before the GST Council in its 47th GST Council meeting, wherein it was decided that the GoM may relook into all the issues again. The GoM submitted its report, and it was placed before the 50th GST Council meeting.

GST Council Recommendations: 28% Tax for Online Gaming, horse racing, and casinos

Since no consensus could be reached on whether the activities of online gaming, horse racing, and casinos should be taxed at 28% on the full-face value of bets placed or on the GGR, The GST Council has deliberated on the issues and has recommended the following:

Suitable amendments to be made in GST law to include online gaming and horse racing in schedule III of the CGST Act, 2017, as taxable actionable claims.
All three, namely Casino, Horse Racing, and Online gaming to be taxed at the uniform rate of 28%.
That GST will apply on.

- The face value of the chips purchased in the case of casinos,
- On the total value of the bets placed with the bookmaker/totalisator in the case of horse racing, and
- On the total value of the bets placed in the case of online gaming

The effective date for the 28% GST levy on online gaming

The effective date for the 28 percent GST levy on online gaming will roll out after amendments to the GST law.

Game of chance vs. Game of skill

Under Indian law, games of skill are generally considered legal, while games of chance are typically considered illegal. The legal distinction between games of skill and games of chance is based on the relative importance of skill and chance in determining the Game's outcome. If the result of a game is predominantly determined by skill, then the Game is considered a game of skill and is generally regarded as legal. On the other hand, if the outcome is predominantly determined by chance, the Game is regarded as a game of chance and is usually considered illegal.

28% For online gaming - No distinction between "Game of skill" and "Game of chance."

As mentioned above, The Goods and Services Tax Council has agreed to levy a 28 percent tax on online gaming, casinos, and horse racing. The GST tax would be charged at total face value. The council said there should be no distinction between the "game of skill" and the "game of chance," closing a loophole that has allowed sports companies to justify their offerings as skill-based.

What FM said Finance Minister Nirmala Sitharaman told For 28% GST?

Finance Minister Nirmala Sitharaman said that GST Council would work closely with the IT ministry on recognizing games under the online gaming category. On 28% GST, she said that the decision on taxation was made after considering the moral dilemma of prioritizing online gaming over essential goods, which have been subject to GST for some time. "Our intention is not to end online gaming, casino, or horse racing. But all these have become so complex that go this route or go that route, each route has transparency to a certain extent, but after that, it is opaque,"