Indian states forced to soften gaming tax blows

India recently imposed new legislation bringing significant changes to the gaming industry’s regulations.

This legislation brings a 28 percent Goods and Services Tax (GST) on multiple gaming activities which include online gaming deposits, land-based casinos, horseracing, lotteries, and foreign-based operations.

These amendments have been passed in order to provide clarity and it is hoped they will harmonise lottery taxation nationwide.

Tax alterations

These amendments within the newly passed Central Goods and Services Tax 2023 bill were of particular concern as the new 28 percent rate was initially set to be applicable to cover deposits by any online gaming customers.

This bill also marks the inclusion of lotteries to the same tax rate attempting to garner nationwide uniformity. 

Previously, lotteries have attracted varied GST rates depending on their operation, either state-run for their own jurisdiction set at 12 per cent or state-approved for different jurisdictions set at 28 percent. 

The new legislation does not refer to this distinction in an attempt to harmonise these tax rates.

Taxation criticisms

The new 28 percent tax rate in particular has received heavy criticism for its application on player deposits as opposed to gross gaming revenue (GGR) instead favouring what is being touted as a “face value tax”.

Many operators voiced concerns and heavy criticism towards this rate which is considered extremely high. So much so an open letter was published by numerous operators and companies across the Indian sector condemning this GST decision.

Smaller operations and start-ups in particular will suffer the heaviest blow from this tax rate affecting market share and competitiveness along with increasing the already unfavourable task of market entry.

In lieu of this criticism, many state officials have also expressed disagreement over the taxation rate’s severity, which was amended in the draft stage and altered the sum applicable for taxation from the sum of individual bets to initial customer deposits.

Nonetheless, this still seems far too stringent alongside what was hoped, a GGR tax rate.

Retroactive doubt

Uncertainty has also been cast over whether or not these changes are being implemented retroactively, in lieu of the Directorate General of GST Intelligence’s (DGGI) ongoing legal actions against numerous online gaming operators and casinos.

In addition to this, the Revenue Secretary is also on record as stating that the GST Council’s decision to enact the amendments has merely clarified an existing regime.

State involvement

These issues seem perhaps too challenging for India’s currently struggling gaming industry which is being characterised by warnings of mass company closures and lost investment.

The implementation of these new regulations is set to be October 1st and due to such a tight deadline, almost every Indian state will most likely be forced to draft ordinances to amend local taxation requirements.

This as opposed to pushing for legislative amendments stemming from a disagreement surrounding the new rates, is favourable as any amendments would not pass before the expiration of the deadline. 

Additional legislative changes

The Integrated Goods and Services Tax was also passed in the same parliamentary monsoon sessions forcing Inda-facing online gaming companies to register with local tax authorities and establish a representative based within the subcontinent’s borders.

This has been enacted to provide a legal basis for blocking foreign-based operators from serving Indian customers without paying the new GST tax.

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