New GST Reality a Fact: Online Gaming Takes the Punch

03 Oct 2023

Nearly 30 months after the GoM (Group of Ministers) led by Meghalaya Chief Minister Conrad K. Sangma was initially formed and tasked to revise the GST regime on casinos, horse races, and online games, a new reality in indirect tax levy became an official fact as of this Sunday.

The October GST Release Happened despite AIGF’s Last-Minute Plea

Late on Friday, the 29th of September, 2023, the Union Ministry of Finance notified the 1st of October to be the date when the latest amendments to GST legislation would come into force, as was expected after the Indian Parliament adopted the recommendations of the GST Council in August.

According to the new legal texts, the supply of a “chance to win” in an online game, regardless of any skill vs. chance interpretations, will be treated as an “actionable claim” like in gambling, betting, and lottery.

Thus, the new regime on online games, casinos, and horse races became active on Sunday, even though the All India Gaming Federation (AIGF) addressed the Finance Ministry in an urgent letter on Saturday, September 30, asking the Center to delay the effective date until all States have passed the changes and the Supreme Court has had its say on the whole matter.

“One Nation, One Tax” Spirit to be Updated ASAP

“This is creating a conundrum where the online gaming companies in such states will have to charge CGST but not SGST. At the same time, in states where the amendment has been done, both CGST and SGST will be charged,” an AIGF spokesperson warned about the litigation-spawning confusion that would be created that could tear apart “the fabric of GST” by delivering a “severe blow to the creed of ‘one nation, one tax.’

“In this light, the industry is hoping that the government will take cognizance of the situation and allow reasonable time to the industry for transition,” added the representative of the AIGF, a Federation with more than 120 members including big names like Mobile Premier League (MPL), Nazara Technologies, Delta Technologies, and Head Digital Works, some of which are currently under fire by the Directorate General of GST Intelligence (DGGI) for alleged tax evasion worth extra large amounts.

According to media reports, the dozen States that have not passed the GST amendments on time will, in the next few days, probably adopt Ordinances as a faster approach like Karnataka.

The Big Fish Already Moved

India’s real money gaming unicorns Dream11 and Games24x7 have already made their move in the new tax situation by acting contrary to expectations that the burden of the 28% full ticket face value levy will be passed to end users.

When a player pays a deposit on their respective platforms, the included GST will be “returned” to the player in the form of discount points or promo cash, automatically used to pay 22% of subsequent contest entry fees.

This move puts the smaller fish in the pool, who are not able to absorb the GST impact of the 1st of October like the unicorns, in a situation where they face the possibility of being pressed hard between the tax and the competition of those who can afford to discount the levy to customers.

In the meantime, companies dealing with recruitment are reporting a solid surge of applications from employees at Indian gaming businesses looking to secure their tech careers because of the massive layoffs that have already started in the sector.

Traceable Offshore Companies Exit

The other major change that came into force on the 1st of October was introduced by amendments to the Integrated GST Act (IGST), requiring offshore registered entities providing games online to users in India to undergo registration and charge 28% GST on deposits and vice versa.

Betway and Bet365, some of the larger international gambling operators who used to run operations in the country “in the grey zone,” have decided to shut down their activities in India because of this and are currently working to refund “any outstanding balances” to desi customers.

Unlike many other foreign-based gambling and betting platforms targeting Indians, whose owners are untraceable and not likely to be ever held responsible for violating Indian law, Betway is headquartered in the UK and is owned by the listed on the New York Stock Exchange Super Group, and Bet365 is majority owned by the Coates family, again in the UK.