“The new proposals keep online gaming companies at par with Casinos in terms of the point of and value of taxation, but ultimately the enhanced tax collected will lead to a reduction in the amount in the system at any given point of time,” said -Pallav Pradyumn Narang, Partner, CNK.
As per the industry’s estimate this will lead to a reduction in player activity and consequently reduction in the revenues and profitability of the companies.
” This is a huge shift from the existing practice of the online real money gaming industry, which has been making the payment of GST only on the platform fee,” said -Ankit Jain, Partner, Ved Jain & Associates.
The GST Council recommended that the valuation of supply of online gaming may be done based on the amount paid or payable to or deposited with the supplier, by or on behalf of the player (excluding the amount entered into games/ bets out of winnings of previous games/ bets) and not on the total value of each bet placed.
What does this mean?
“It implies that GST will be levied only on the initial buy-in, and not on the winnings and the bets placed from the winnings, which will prevent the double taxation,” said Jain, explaining this with the following example.
Say a player wants to play with Rs 1 lakh. He will have to pay GST@ 28% i.e. Rs. 28,000 additionally. When he places a bet, he will have to pay the platform fee of, say 15%, amounting to Rs 15,000. Assuming he places the bet and wins Rs 20,000, in which case he is not required to pay GST on this amount again, even if he places another bet with this winning amount.
However, TDS under Income tax at the rate of 30% i.e. Rs. 6,000 will be deducted from this winning amount.
If we look at the final picture, the player invested Rs 128,000 but ended up with Rs. 99,000 only, despite winning Rs. 20,000.
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Small players will be discouraged to play
“This might discourage the small players to a great extent and this is why the online real money gaming industry has been frightened ever since the 50th GST Council Meeting,” said Jain.
“The GST of 28% would leave pot value of around Rs 68/- only with a player, assuming an entry fee of Rs10/- and total bet value is considered inclusive of GST. His winnings would now be based on Rs. 68/- as against on Rs. 88/- earlier. This will significantly reduce the interest of players in the organised gaming,” said Kamal Agarwal, Senior Partner – GST, Singhania & Co.