As companies in the sector scrambled to seek clarity and, potentially, a review of the decision taken by the GST Council, which has representation from the state governments, the finance ministry has said an early review is unlikely.
However, MeitY feels a review can be sought in line with the online gaming rules it announced in April. “There has been a sense that GST on full face value could impact smaller startups in the online gaming sector… it is not the intention of the government to hurt the sector. That is the thought process with which a review will be sought, once the new framework (of online gaming rules) is up and running,” a senior mnistry official said on condition of anonymity.
Minister of state for IT Rajeev Chandrasekhar last week said MeitY would approach the GST Council and urge it to consider the evolving framework of permissible online real money gaming, as defined by the new rules.
Another senior government official said there is a fundamental difference between MeitY’s views and those of the states. “There were statements that deliberations around the GST Council’s decision for online gaming were on moral and ethical grounds,” said the official, who did not wish to be identified.
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Hope for Industry
“… but MeitY does not (put) all real money games in the same bucket as gambling or betting,” said the official.ET’s queries sent to MeitY and the finance ministry did not elicit a response till press time.
While MeitY is contemplating presenting a view to the GST Council that is in tune with the online gaming rules – a move to which companies are looking forward – the next steps for the tax department include defending its legal position in cases where it has raised demands for GST.
In an interview with ET on July 14, Central Board of Indirect Taxes and Customs chairman Vivek Johri said, “The legal intent and position has been that these activities purely involve betting and gambling and, therefore, are chargeable at 28% tax on full value.”
Meanwhile, the Directorate General of GST Intelligence is in the process of filing a petition in the Supreme Court against Karnataka High Court’s decision to quash a Rs 21,000-crore tax notice slapped on Bengaluru-based Gameskraft.
The online gaming industry has argued that imposition of 28% levy on the full face value could result in users migrating to illegal betting and gambling platforms in the lookout for better returns.
On July 15, around 130 gaming companies and industry associations came together and wrote an open letter to the government, seeking a review of the GST proposal. Last week, a group of 30 investors backing online gaming platforms in India wrote to Prime Minister Narendra Modi, suggesting that the proposal could lead to a potential write-off of the $2.5-billion capital invested in the sector.
“The companies have already sought a review of the current proposal from the government but the message from the finance ministry is that there is no room for a reconsideration in the near future…it is what it is,” said a senior executive at a gaming company, requesting not to be identified. “The signals from MeitY are a positive, though. If the tax is applicable repeatedly on every bet placed even when played using winnings, it could severely discourage users.”
MeitY and States
Even while drafting the rules for online gaming, which prescribe that real money games that allow wagering on an outcome will not be permissible on the Indian internet, the IT ministry had been taking into account the state governments’ position.
“Gambling and betting is a state subject and state governments are free to take a view on that… but gaming companies have been told to approach them with the new rules so state government officials are made aware of the new framework,” said one of the officials cited earlier.
ET reported on July 5 that online gaming companies, through their industry associations, were planning to reach out to state governments on their concerns over implementation of gaming rules.
It is learnt that gaming companies had conveyed to MeitY that despite the newly notified Central rules, gambling and betting continued to be state subjects and that states had authority to prohibit such games.
“If the lack of definition of wagering on an outcome is read together with laws of the land, and if state governments determine that a particular platform allows gambling, they can still potentially be banned,” an executive at a gaming company had earlier said.
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