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GST Council Offers No Relief For The Online Gaming Industry

Online gaming companies, which have been waiting for a review of the 28% tax regime, did not receive any relief from the Goods and Services Tax (GST) Council as the issue was not addressed during the Council’s meeting on Saturday (22nd June).

During a press conference after the meeting, Finance Minister Nirmala Sitharaman stated that GST on online gaming was not on the Council’s agenda, so it was not discussed. The GST Council’s decision to impose a 28% GST on real-money gaming has been in effect since 1st October 2023. The finance minister previously mentioned that this decision would be reviewed six months after implementation.

Despite speculations that the GST Council might review the decision in its latest meeting, the topic was not included in the agenda.

Last year, the GST Council decided to impose a 28% GST on the full face value of deposits made in online real-money gaming. This decision faced significant criticism from industry stakeholders, including gaming startups, industry bodies, and investors, who urged the government to reconsider. Despite the backlash, the GST Council stood firm in its decision.

#WATCH | Delhi: On the 52nd GST Council meeting, Delhi minister Atishi says, “The (online gaming) industry whose revenue is Rs 23,000 crore and if you send tax evasion notices worth Rs 1.5 lakh crore to them then it’s just a way to kill that industry. It shows foreign investors… pic.twitter.com/8sDW3hc0Jk

— ANI (@ANI) October 7, 2023

In August, amendments to the Central Goods and Services Tax (Amendment) Bill, 2023, and the Integrated Goods and Services Tax (Amendment) Bill, 2023, were approved by the GST Council and later by Parliament.

Previously, a lower 18% GST was levied specifically on the platform fee for skill-based games. Several online gaming startups, including Gameskraft and Delta Corp, received notices to pay ₹1.12 Lakh Crore GST and have moved to courts challenging these tax notices.

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More than 50% of online gaming companies in India have experienced stagnant or declining revenues after the government imposed the 28% GST, according to a recent report by EY and the US-India Strategic Partnership Forum (USISPF) based on a survey of 12 companies.

Of the 12 companies surveyed, only five recorded revenue growth, while seven experienced degrowth or stagnant revenues. The report noted that in some cases, revenue decline was as high as 50% for two companies, a stark contrast to the industry’s previously exponential growth rates.

Additionally, several companies have reported that investors withdrew from potential deals due to these challenges. GST now consumes 50-100% of revenue for 33% of companies, up from around 15% under the previous tax regime, surpassing total revenue for some startups and forcing them to operate at a loss.

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ALSO READ: 28% GST: New Changes Implemented By Online Poker Sites From 1st Oct

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Before the new regulation, the Indian gaming industry experienced significant growth during FY23, with the number of gamers increasing 12% year-on-year to 568 Million. Of these, 25% were paying users, reflecting a strong 17% growth in paying users compared to FY22, according to a report by Lumikai.

GST Council Meet | Here’s what FM Nirmala Sitharaman had to say about the issue related to GST on online gaming in India👇@TradeBulls_2212 pic.twitter.com/wE3JiJqiNq

— TradeBulls (@TradeBulls_2212) June 22, 2024

Jay Sayta, Technology and Gaming Lawyer said the following on the latest GST Council meeting, “Although the Finance Minister clearly indicated that review of the 28% taxation on initial deposits for casinos and online gaming for was neither on the agenda for today’s meeting nor was discussed, in the 51st GST Council meeting held in August 2023, it was decided that a review of the new taxation regime for online gaming and casinos will be done six months post its implementation. 

Since the new tax regime was notified from 1st October, 2023, it has been over 8 months since it has been implemented. Even though discussion on the subject could not take place today, the industry is hopeful that a comprehensive review and discussion on the subject will take place in the next council meeting that is scheduled to take place in August-September 2024.

As far as retrospective show cause notices to online gaming and casino companies are concerned, it is encouraging that the GST Council has recommended insertion of a new provision in the CGST and SGST Acts, i.e., Section 11A that would give power to the government, based on the recommendations of the council, to allow regularization of short or non-levy of GST if such tax was not being paid due to common trade practices. 

Since the entire online gaming industry was paying tax only on Gross Gaming Revenue (GGR) or margins until 1st October, 2023 and it was a common trade practice, the amendment once passed by parliament and state legislatures, will potentially be a first step to enable the government to withdraw retrospective show cause notices issued to over 70 online gaming companies based on the erroneous computation of face value of each bet instead of the common trade practice of GGR.”

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