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Indian tax authority leaves operators in the lurch

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According to industry experts, the latest GST Council in India did not discuss gaming taxes. This has left operators with a lack “clarity”.

Indian gaming stakeholder hoped that the Council would revisit a tax of 28% on online gambling, horse racing betting and casino games. At its Saturday meeting (22nd June), the Council reviewed various regulations and rates across different sectors. It announced the tax in July last year.

During the meeting Finance Minister Nirmala Sitharaman said that the controversial gambling tax was “not up for discussion”.

Tax impact

This unpopular tax applies to the full face value of a wager, not gross gaming revenues, which makes it a tax based on turnover.

There is still no relief or clarity regarding taxation on transaction values rather than the revenue of the platform. Aruna Aruna, economist and ex-Indian government official told iGaming Business that the heavy taxes are likely to be transferred to players.

She said that the Supreme Court could impose GST on only the revenue of the platforms, and not the real-money games.

Last month, the Supreme Court said it would be hearing several cases from operators who were contesting retroactive 28% tax on turnover demands. Tax regime started in October 2023, and operators thought a six-month review would be promised.

Relief clause

A new clause approved on Saturday could offer some relief. If passed by India’s parliament, Section 11A would give companies from different industries the opportunity to request relief for retrospective tax claims.

The Supreme Court announced last month that it will hear several petitions challenging retrospective requests from gambling operators.

The taxation of online gambling may be reviewed by the newly constituted tax rationalisation Group of Ministers Committee, Dr Sharma said.

The amendment to Section 11A includes a new clause which allows the state and centre to waive retrospective taxes due ambiguities. The amendment also permits the waiving of interest and penalties on retroactive tax.

‘Major disappointment’

The gaming industry is still in the dark about the flat 28% tax rate.

Manish Mishra of JSA Advocates and Solicitors described the absence of discussion surrounding online gaming, as “major disappointment”.

Rajat Bose of Shardul Amarchand Mangaldas & Co Advocates & Solicitors outlined to iGB the broader industry concerns.

He said that the online gaming industry eagerly awaited the GST Council meeting, hoping their concerns would be addressed. However, the issues they raised could not be included in the agenda. It will be necessary to wait for the next meeting before the industry can see any clarity regarding the tax structure, especially in relation to retrospective application.

What’s on the Agenda?

The GST Council has not yet indicated when it will respond to the concerns.

Sitharaman stated on Saturday that there was not enough time for the GST Council to address all the items listed on its agenda. She said that these items will be discussed in a future meeting, perhaps before the end August.

She also stated that “gaming tax” was not included in the meeting agenda for Saturday.

A challenge for operators

The challenges facing operators are highlighted in a new report jointly produced by Ernst & Young & the US-India Strategic Partnership Forum.

According to the report, Indian gaming has received $2.6bn in foreign direct investments since 2019. Since the introduction of the new tax system, however, there has not been any capital raised.

The report also stated that “some companies have reported an abrupt withdrawal of investors from global brands just as the GST regime was introduced.”

Super Group, for example, which owned the sportsbook Betway brand and the online casino Spin brand, left India last October.

In India, the online gambling market underwent a second significant change last year. The Indian government will publish new regulations to regulate online gaming in January 2023.

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