21.08.2023: GST only at entry-level may reduce tax liability of e-gaming firms

E-gaming companies may have a stronger case to get their Goods and Services Tax liability reduced by the courts, with the GST Council’s decision that a 28% tax will apply on the full face value of bets only at the entry level, tax experts feel. These companies, including Bengaluru-based Gameskraft Technology Private Ltd (GTPL), are contesting past notices from the tax department, where the tax amounts were computed, requiring the tax to be applicable at the stage of every bet, and not just at the entry-level.

The Centre has filed a special leave petition (SLP) challenging the Karnataka high court order, which set aside a Rs 21,000 crore tax notice GTPL. According to sources, if 28% tax is applied only at the entry-level face value and not each time bets are placed and the subsequent winnings, then the tax liability on Gameskraft would come down to just Rs 5,000-6,000 crore.

Of course, the Centre could still hold on to the stance that the new decision will only have a prospective validity, from October 1 when it takes effect, and doesn’t apply to past cases. However, since there was a dispute on the rule in this regard even earlier, and how the games of skill and games of chance are taxed, the latest decision of the Council gives new ammunition to the companies.

“Several issues need clarity, including whether the Council’s decision will be implemented prospectively or retrospectively. Tax notices in past cases were based on each bet. So, clarity is needed for the notices of cases investigated earlier and whether those will be based on the entry-level face value bets or on each bet,” a source said.

On their part, the GST field formations have written to the Central Board of Indirect Taxes and Customs (CBIC) to clarify these issues before fresh notices are issued to gaming platforms.

In its 50th meeting, the Council decided to impose GST at 28% on online gaming, the highest slab, a move that rattled the industry. Following representation from the industry, the Council in its 51st meeting decided to exempt redeployment of the winnings from online gaming or bets out of previous bets, in a significant relaxation for the fast-growing gaming industry.

“The Council also recommended that valuation of supply of online gaming and actionable claims in casinos 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,” the Union finance ministry said in a statement after the Council meeting on August 2.

The online gaming industry supplying actionable claims and some horse race clubs are currently paying GST at 18% on platform fees/commissions ranging from 5% to 20% of the full-face value, while some horse race clubs are paying 28% on the full-face value.

The government’s contention has been that these actionable claims were always meant to be taxed at 28% on full face value even though legal changes are being carried out now in the case of online gaming.

The Directorate-General of GST Intelligence (DGGI) has held that Gameskraft’s platform offered betting and gambling activities worth Rs 77,000 crore between 2017 and June 30, 2022, which the company has contested in HC. It said these were skill gaming activities and not betting. The HC had quashed the show-cause tax notice.

Source: The Financial Express

Register Today