Eventus International hosted a SPiCE India 2020 webinar called ‘An Update on GST in the Gaming Industry’ on 8 April 2020. The event was moderated by Jay Sayta, Strategic Advisor, SPiCE India 2020.
In the webinar, L. Badri Narayanan, Senior Partner, Lakshmikumaran & Sridharan Attorneys, spoke about the judicial developments in GST on the gaming industry, GST rates on gambling, betting and skill games, GST investigations, and the way forward for industry operators.
Naryanan said that since GST’s conception in 2017, the gaming industry has been in scrutiny, when it comes to payment of taxes.
Judicial Developments in GST on Gaming in India
On the judicial front, there has been a debate on whether gaming platforms should pay GST on the amount collected from players, as it is the actual transaction amount, or should the platforms deduct the prize pool (distributed back to players) and pay taxes on the balance, which is the platform fee.
Till now, gaming platforms have paid taxes on the platform fee they collect from their users, as the amount in the escrow accounts does not even go into their pockets.
A criminal public Litigation was filed against Dream11, a fantasy sports platform, in the Bombay High Court, where it was alleged that the platform has been evading payment of due GST in relation to its operations. The Bombay High Court (BHC) held that as per Schedule III, the amounts pooled by the platform in the escrow account are ‘actionable claim’ to be distributed among the winners and are also not in relation to activities of lottery, betting and gambling. The judgement was based on Sunrise associates and other judgements where it was determined that the prize pool is not taxable under service tax and sales tax regimes (actionable claim not liable to be taxed). This favourable ruling allowed Dream11 to pay GST on only the platform fee it collects from its users.
Special Leave Petitions (SLP) filed against the Bombay High Court Dream11 judgement, by Sachar and the Union of India, were dismissed by the Supreme Court (SC). The SC, however, allowed the Union of India to file a review petition in the BHC on the issue of taxability of the activity under GST. Later, an SLP filed by the state of Maharashtra, however, has been admitted by the SC, showing the apex court’s interest in the matter. A notice has been issued to the respondent, i.e. Dream11 to ask why the matter should not be admitted in SC. The outcomes of these petitions are yet to be seen.
As per Schedule III of the CGST Act, 2017, activities or transactions which shall be treated neither as a supply of goods nor a supply of services for taxing purposes include actionable claims, other than lottery, betting and gambling.
However, the valuation Rule 31A of CGST states that the taxable value, especially in betting, gambling and horse racing in a race club, shall be 100% of the face value of the bet or the amount paid into the totalisator. This caused a lot of issues in evaluating due taxes by gaming platforms and organisers.
As the GST investigations are carried out, Narayanan suggests that the ‘important thing is to ensure that we cooperate with investigation officers and comply with the Service tax and GST regimes.’
Concerns regarding this valuation method have been presented to the GST Council, as this poses the risk of taxing the industry out of business into the grey market. This will lead to losses in revenue for the government, too.
Value and Rate of GST on Gaming
The GST council recognises that it needs to consider two main variables of GST for the gaming industry—Value and Rate.
The international way of taxation is to understand that the value is the actual margin from transactions (i.e. bet value minus prize pool).
The rate and valuation issues of Casinos, Horse Racing, Online Gaming, Betting was referred to the Fitment Committee. As per the proposed rates, GST Council may consider to take only 30% of bet value as revenue to levy taxes on.
GST at a rate of 28% with compensation cess of 115% may be levied on online gaming, betting in horse racing, and betting and gambling in casinos, which would make effective rate of taxation on face value at 18%.
For Lottery, the matter is before the Group of Ministers (GoM), which was set up to look into the differential GST rates on lottery tickets and tax issues arising from lottery sales. Last year, the 38th meeting of the Goods and Services Tax (GST) council voted to impose a single rate of 28% on state-run and authorised lottery.
Narayanan suggests that as the GST council and Fitment committee are still considering these matters, right now is the right time for industry operators to represent their cases in front of the GST council.
Another topic that was touched upon during the webinar was the ongoing GST investigations in the gaming industry, which often lead to the involvement of regulators like RBI and PPI. This requires operators to stay in line with RBI and PPI instruments by creating a business model in place that takes into consideration a full scheme of things.
In the Question and Answer round of the webinar, Sayta asked if the GST Council will wait for the decision of the courts before taking a decision. Narayanan answered that, to some extent, the GST council might try to defer the decision till the SC reaches a verdict, but the wait may not be very long.
The session ended with Yudi Soetjiptadi, Managing Director, Eventus International, announcing more upcoming SPiCE India webinars in the coming weeks.
