Centre Defends 28% GST On Online Gaming As States Question Tax Notices

The debate around the tax demand notices for past periods received by online gaming companies is likely to be settled legally, as the Centre defended the levy of 28% of the Goods and Services Tax on online gaming and casinos as pre-existing. Meanwhile, member states like Delhi and Goa have flagged concerns about this being a retrospective levy.

Speaking after the 52nd GST council meeting on Saturday, Revenue Secretary Sanjay Malhotra clarified that the 'law has not been amended retrospectively' and the 'liabilities were already existing.'

The first of the legal disputes, particularly with Gameskraft, is slated to be heard by the Supreme Court later this month.

At the 51st GST council meeting in August, online gaming, casinos, and horse racing were added to the list of actionable claims, along with lottery, betting, and gambling, that attract a 28% tax. The amendments to the central GST and Integrated GST laws were then approved by the parliament and notified by the central government to be effective Oct. 1, 2023.

"...Certain members did raise this issue, and it was informed to them that this is not retrospective in any way because this is how the law was earlier. The law has not been amended retrospectively, so these liabilities already exist because the online money games played for bets ....were already attracting (GST of 28%) by virtue of their entry into betting and gambling...," Malhotra said.

Ahead of the proceedings of the day, Delhi's Finance Minister, Atishi, who represents the capital in the council, said that Delhi would ask for the withdrawal of the notices sent to the online gaming companies.

"The council has sent tax evasion notices for the last six years worth Rs 1.5 lakh crores to the online gaming industry, where the valuation of the industry is Rs 23,000 crores..." she said. After the meeting, she told reporters on the sidelines that no assurances were given from the centre on the taxation liability of gaming platforms and that she hoped it would be considered going forward.

Speaking post-meeting, Chhattisgarh Deputy Chief Minister TS Singh Deo, also a member of the GST Council, said the issue of the tax demand notices was raised, and as the Directorate General of GST Intelligence (DGGI) is an independent body, there cannot be any interference. He added that the GST Council's chairperson said she would make clarifications available to DGGI if required.

Commenting on the outcome of the meeting, L. Badri Narayanan, executive partner at Lakshmikumaran & Sridharan Attroneys, noted the GST council has not provided any respite for ongoing investigations and show casue notifications issued under the earlier regime.

"...the Revenue Secretary reiterated the position on transactions being covered by the betting entry and that the tax (levy) is not retrospective. The tax-on-deposit regime is a concession extended. (But) companies have no option than to knock on the doors of court on the erroneous interpretation canvassed by the department,” he said.

So far, 18 states have passed the ordinance and legislative changes to their state GST laws, while 13 are yet to pass the amendments.