India’s decision to introduce a Goods and Services Tax of 28% on all turnover has dealt a serious blow to the burgeoning and exciting gaming industry. Can India reverse the GST tide with all of this industry opposition and efforts to stop court orders related to GST?
Travel back in time to 1867 when India passed the Public Gaming Act.
The legislation regulates some gambling forms with very strict rules. The law legalised horseracing and lotteries but prohibited the operation of gaming rooms. Anyone caught operating a public gambling house was fined Rs 200.
The original law could not have included online gaming. The practice was left in an uncertain state, even though there were many gambling and sports enthusiasts who would be willing to support it.
Recent years have seen attempts to legalise online gambling as well as sports betting. The Supreme Court supported legal betting in 2016, citing India’s love of cricket as the main driver.
In the same year, the Nagaland Bill was being considered by a Special Committee of Government of Nagaland. The bill described how Indian law would regulate online gaming, specifically games of skills.
Defining online gaming
The Nagaland Bill became law on April 16, 2016 when PB Acharya signed it into law. Online gaming is largely regulated by each state.
In India, a concerted attempt is made today to categorize online gaming.
Games of skill are online games in which bets and wins can only be achieved through the use of skills, not luck. Rummy was recognized as a skill game in 1968. All other legal gambling activities in India are classified as games of chance.
It is important to have a distinct distinction between skill games and chance games in order to operate legally. Self-Regulatory Organisations, also known as SROs and SRBs, are the answer.
The amended IT Rule of 2023 established SROs. The IT Ministry, along with SROs and other industry regulators would be able to jointly define the games. This would give the industry more control and flexibility.
Aruna Aruna, economist and ex-Indian government official, explains that “the Self-Regulatory Organisations (SROs) formed under the IT Rule 2023 guidelines have a significant role to play in setting these parameters.”
The SROs have already been formed and their codes of conduct are in place.
The SROs must create a system that allows users to access information on gambling harm prevention. These organisations also have to set up Know Your Customer (KYC), be located in India, and implement a complaint process.
If we pause here, it is clear that India’s gaming online market has grown slowly and steadily. It can’t stay smooth for ever.
The fairytale ends abruptly
The GST is a flat rate of 28% on all online betting, horse racing and casino turnover. The GST Council of India announced this move last July to a great deal of anger. The All India Gaming Federation, for example, condemned the rate of tax as a potential threat to the market.
The criticism is justified. Super Group, the operator of Betway, Spin and Spin Casino, as well as Betway Sportsbook, left the Indian market in October last year due to GST.
Ravindra Shinde is the CEO of Dyutabhumi Hotel and Resorts. He agrees with Ravindra Shinde that this rate is extremely high, even when compared to rates in other nations.
Shinde says that the high gambling tax in India is the main reason why foreign operators are not interested in the Indian gambling industry.
The GST will be charged on the total value of bets placed by online operators, and not the gross gaming revenues (GGR) for horseracing. The tax will be charged to land-based operators on the value of the chips they sell at retail venues.
Shinde says that if the tax rate was lowered to 28%, India’s gaming industry would flourish.
He says that the current 28% tax is unaffordable for international operators. If the Indian government reduced the tax, gambling in India would become very lucrative.
Cash money
It won’t make any money. India’s tax authority is currently trying to retroactively implement the 28% GST for online gaming operators. They have even gone as far to issue show-cause notifications to real-money operators who are claiming GST evasion.
According to local media these show-cause notices, which reference alleged GST evasion dating back to 2018, total Rs1tn (PS9.45bn/EUR11.06bn/$12.05bn).
Sharma says that the development has stunned industry, but next week’s events could provide a small glimmer.
A hearing at the Supreme Court will take place on 2 April. The GST rate could be challenged in the Supreme Court session, just as it was at the High Court of States.
In January, media reports stated that Head Digital Works & Games 24/7 had pleaded with the Supreme Court to challenge the decision of 28% GST. In January, the central government and GST Council had been asked to respond to challenges in two weeks.
What lies ahead?
Sharma claims that despite the current battle about the GST, India’s gaming market has seen a lot of growth.
She explains, “The igaming industry in India has been growing rapidly, thanks to the significant increase in players and platforms, as well as the increased accessibility of smartphones and internet.”
Sharma has high hopes for India’s gaming industry in 2024. She predicts it to grow, thanks in part to the fact that “60% of India’s 100 million mobiles are smartphones”.
She says, “In this sense, we can anticipate a growing and stronger user base.”
No matter how you look at the Indian gambling market, GST will always be close.
Shinde adds, “Some 28 percent is an extremely high tax because gambling companies would invest their money elsewhere.” He’s absolutely right. Super Group wasn’t the sole company that left the Indian market. Bet365 officially quit in October.
India’s battle against its extortionately-high GST has reached a crucial crossroads. The highest courts in India are considering challenges against both the retroactive application of the tax and the rate of 28%. The industry must now make the case to reduce the tax rate dramatically.
