Taxmann’s Analysis | 51st GST Council Meeting Recommendations

Analysis

of Recommendations made in 51st GST Council Meeting

Analysis of Recommendations made in 51st GST Council Meeting

1. Introduction

The 51st GST Council meeting, held on August 2nd, 2023, via video conferencing in New Delhi, was chaired by Hon’ble Union Finance Minister Smt. Nirmala Sitharaman. This meeting, took place just 20 days after the 50th GST Council meeting, mainly focused on clarifying the taxation of supplies in casinos, horse racing, and online gaming. Additionally, discussions were held on the necessary amendments and language changes required in the GST law.

During the 50th GST Council meeting, it was decided that the supplies would in casinos, horse racing, and online gaming attract 28% GST rate on the full face value, irrespective of whether they were considered games of skill or chance. In the recent 51st meeting, the GST Council finalized specific amendments to the Central Goods and Services Tax Act, 2017 (‘CGST Act’), and Integrated Goods and Services Tax Act, 2017 (‘IGST Act’), despite concerns raised by the States of Delhi, Sikkim, and Goa. However, the Council agreed to review the implementation of this decision after a period of six months of its effectiveness.

In the press conference following the meeting, the Council expressed its interest in expediting the approval process for the amendments during the ongoing Monsoon session, aiming to implement changes in the CGST and IGST Acts by October 1, 2023.

2. GST Council Recommendations on taxability of online gaming, horse racing, and casinos

The GST Council’s 50th meeting decided that online gaming, horse racing, and casinos would be subject to a 28% GST rate on the face value. The transaction value for taxability was determined as follows:

• Online gaming - Full value of the bets placed

• Horse Racing - Full value of the bets placed with bookmakers/totalizators

• Casinos - Face value of the chips purchased

In the 51st meeting, the Council recommended several amendments, which are discussed below:

2.1. Amendments in Schedule III of the CGST Act

The GST Council in its 50th meeting recommended that suitable amendments would be made to exclude online gaming, horse racing and casinos from Entry 6 of Schedule III of the CGST Act and thereby treating the said supply as taxable actionable claims without differentiating between whether it is a game of skill or a game of chance.

2.2. Valuation of supply of online gaming and actionable claims in casinos

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 Council recommended that CGST Rules, 2017 may be amended to insert specific provisions for valuation of supply of online gaming and supply of actionable claims in casino accordingly. By doing so, the valuation would no longer be based on the total value of each bet placed, rather on the actual amount paid or deposited by the player with the supplier. Where the winning amount is used for placing the bet, the same would not be chargeable to GST.

2.3. Taxability based on the consideration paid for online gaming, casino, etc.

The Council stated that when payments for participating in online gaming or casino betting are made using Virtual Digital Currency (VDC) or Virtual Digital Assets (VDA), such transactions will be considered as consideration for the supply of services and would be subject to GST. However, if no money or consideration is involved in playing online games, taxability would not arise.

2.4. Insertion of various definitions under the GST law

Definitions of various terms such as online money gaming, online gaming, Virtual Digital Assets (‘VDAs’) would be inserted under the law. It was stated that the definition of VDA or Virtual Digital Currency, as per Section 2(47A) of the Income Tax Act, 1961, will be adopted and applied under the GST law.

Further, the definition of the term ’supplier’ would be amended to include a person who is arranging a platform where online games can be played or actionable claims can be brought.

2.5. Taxability where supplies are made by offshore entities

The Council’s recommendations entail introducing a specific provision in the IGST Act to address the tax liability on the supply of online money gaming services by offshore entities to recipients in India. To streamline the process, a simplified registration scheme will be implemented, allowing offshore entities to have a single registration for these services.

In cases where offshore entities fail to comply with the registration and tax payment provisions, the Government will use the Information Technology Act, 2000 to block access to their websites.

It is important to note that Online Gaming is already covered under OIDAR (Online Information and Database Access or Retrieval) services as defined in Section 2(17) of the IGST Act. Additionally, the concept of Simplified Registration Scheme, provided under Section 14 of the IGST Act, is specifically applicable to offshore entities engaged in the supply of OIDAR services, making them liable to pay IGST on such services.

2.6. Need for clarity in determining place of supply of services provided online

The Council has recognized the need for clarity in determining the place of supply of services provided online. This issue arises when a supplier offers services online from one location, but these services can be consumed by users anywhere through online platforms. Such ambiguity also has implications for the taxability of online gaming services.

No clarity was provided by the Council on the issue yet, however, they did suggest that further clarity might be provided through the issuance of a circular in the future.

2.7. Taxability in the States where supplies are banned in India

During the Council discussions, the State of Tamil Nadu raised concerns about the impact of GST on online gaming, considering it is banned within their State. In response, the Council clarified that while betting activities are already subject to GST as per the existing law, this does not render them legal if they are prohibited in specific states.

Similarly, the inclusion of online gaming in the scope of GST and its taxation does not imply a change in its legal status in the States where it is banned or considered illegal. The legality of online gaming remains governed by individual State laws, and the imposition of GST on such activities does not alter their prohibited status in any way. Thus, the GST levy on online gaming does not override the bans or restrictions imposed by certain states.

3. Clarification regarding the applicability of amended provisions

The GST Council has recommended the necessary amendments in the CGST Act, IGST Act, and respective State and Union Territory GST Acts, which are intended to be effective from October 1, 2023.

Notably, the GST Council in its 50th GST Council meeting had earlier clarified that the amendments pertaining to the taxability of casinos, horse racing, and online gaming would be clarificatory and retrospective in nature.

In the recent press conference, the Council has stated that any amendment in the law is generally prospective in nature and not retrospective. However, this specific amendment related to the taxability of casinos, horse racing, and online gaming is considered to be clarificatory in nature. The Council believes that since betting, gambling, and lottery are already included within the ambit of the GST law, online gaming, casinos, and horse racing should also be treated as forms of betting and wagering.

Notably, the Karnataka High Court in the case of Gameskraft Technologies (P.) Ltd. [2023] 150 taxmann.com 252 (Karnataka) has earlier quashed and set aside Rs. 21,000

crore GST show cause notice. The High Court has, in substance, held that GST is chargeable only on the platform fee/ Gross Gaming Revenue (GGR) earned by the online gaming companies at the rate of 18% instead of GST payable on the entire amount of bets placed on the online gaming platforms. The Revenue has now filed a Special Leave Petition against the said order of the Karnataka High Court.

The Council has confirmed that the decision of the Apex Court would prevail to decide whether the provisions will apply under the existing provisions also.

4. Review of the amendments after 6 months

The Council stated that once the amendments in the GST law made in respect of the above are made effective, the Council would be reviewing the impacts of the same on the revenue etc. for a period of six months and the future course of action would be decided accordingly. This would be done as the States of Goa and Sikkim were descanting on taxing the casinos on face value.

It was stated that the review will probably not bring any changes in the law. Any further changes based on the review may be implemented by way of notification or by changes in the Rules.

5. Understanding impact on the Gamers

Let’s consider the scenario of two individuals, Person A and Person B, each placing a 1,000 rupees bet on a sports event. Assuming the platform fee remains constant at 5%, we’ll explore how variations in the GST rate can significantly influence the net return for the bettors.

Recommended Provisions

Person A’s Perspective:

Fee (5%): Rs. 1000 * 0.05 = Rs. 50

GST (28%): Rs. 1000 * 0.28 = Rs. 280

Total Deductions: Rs. 50 + 280 = Rs. 330

Amount at Stake: Rs. 1000 - 330 = Rs. 670

Person A Wins:

Person A’s Total Return: Rs. 670 * 2 = Rs. 1340

Income Tax on winnings (30%): Rs. 340 * 0.30 = Rs. 102

Person A’s Gross Return: Rs. 1340 - 102 = Rs. 1238

Person A’s Net Return: Rs. 1238 - 1000 = Rs. 238

Person A’s Perspective:

Fee (5%): Rs. 1000 * 0.05 = Rs. 50

GST (18%): Rs. 50 * 0.18 = Rs. 9

Total Deductions: Rs. 50 + 9 = Rs. 59

Amount at Stake: Rs. 1000 – 59 = Rs. 941

Person A Wins:

Person A’s Total Return: Rs. 941 * 2 = Rs. 1882

Income Tax on winnings (30%): Rs. 882 * 0.30 = Rs. 265

Person A’s Gross Return: Rs. 1882 – 265 = Rs. 1617

Person A’s Net Return: Rs. 1617 – 1000 = Rs. 617

The comparison between the existing provisions (18% GST rate on platform fee) and the recommended provisions (28% GST rate on full face value) reveals a substantial difference in Person A’s net return.

The comparison between the two scenarios implies that a higher GST rate on the full face value of the bet significantly reduces the net return for the bettors. In the existing provisions (18% GST rate on platform fee), the net return for Person A is Rs. 617, whereas in the proposed provisions (28% GST rate on full face value), the net return drops to Rs. 238 (decline of approx. 24%). This shows that the GST rate has a considerable impact on the final returns for the bettors.

It should also be noted that if the platform’s fee is increased, the net return for the bettors would be further reduced, raising concerns about whether players would continue betting under such circumstances. If the net return becomes too low, it may deter players from participating, potentially impacting the existence of gaming platforms.

Furthermore, it is noteworthy that the GST amount (Rs. 280) itself is higher than the net earnings (Rs. 238) of the winner from betting after TDS. This raises questions about the sustainability of industry in such a tax structure, as it could discourage participation in betting activities due to the disproportionate impact of taxes on the potential winnings.

About TAXMANN

Our mission at Taxmann is ‘Spearheading the pursuit of expertise & authenticity’. We at Taxmann strive to provide authentic and fastest reporting of information. We are proud to call ourselves the #1 source for everything on Tax and Corporate Laws in India. Our domain knowledge of more than 60 years has helped us in being trusted by more than 500K legal professionals across the country.

Taxmann Alliance is the only publishing house in India with complete backward and forward integration, right from self-owned paper printing unit to in-house research and editorial team, and finally reaching the readers through its own distribution network all across India. The group has also ventured into the technologies division since 2007.

Taxmann Alliance consists of four independent verticals:

Research & Editorial

Taxmann Research & Editorial comprises of an enthusiastic team of over 200 Legal associates. They are responsible for keeping the readers abreast of the latest developments in the judicial, administrative and legislative fields in the form of authentic articles and updates.

Sales & Marketing

At Taxmann, we believe in marketing our products through various refined sales channels, with a diverse network of Dealers & Distributors and an in-house marketing team.

A quick preview of the strength of our sales is listed below:

Printing

Tan Prints has been carrying out specialized printing jobs since the 1980s in their beautifully landscaped facility spread over 10,000 sq. meters. Tan Prints has a strong presence in Nigeria, Ghana, Ethiopia, Rwanda, Uganda and Kenya. It not only caters to reputed Book Publishers but also Governments, Universities and Institutes.

Technologies

Taxmann’s excellent team of professionals offers the best in class end-to-end website and App designing, development and maintenance solutions.

Taxmann Group

Research & Editorial

21/35, West Punjabi Bagh, New Delhi – 110026

Phone : +91-11-45662200 | E-mail : editorial@taxmann.com

Printing - Tan Prints

44 Km. Mile Stone, National Highway, Rohtak Road Village Rohad, Distt. Jhajjar (Haryana)

Phone : 01276-278155-56 | Mobile : 9896514100 | E-mail : sales@tanprints.com

Technologies

59/32, New Rohtak Road, New Delhi - 110005 (India) | Phone : +91-11-46462222 | E-mail : technologies@taxmann.com

Delhi: 59/32, New Rohtak Road, New Delhi - 110005 (India)

Tel: +91-11-45562222 | For Support Enquiry: support@taxmann.com

For Sales Enquiry: sales@taxmann.com | Skype ID: taxmannindia

Mumbai: 35, Bodke Building, Ground Floor, MG Road, Opp. Mulund Railway Station, Mulund (W), Mumbai - 400080

Tel: +91-022-25934806/07/09, 25644807 | Mobile: 09322247686, +91-9619668669

Email: sales.mumbai@taxmann.com, nileshbhanushali@taxmann.com

Ahmedabad: 7, Abhinav Arcade, Ground Floor, Nr. Bank of Baroda, Pritam Nagar Paldi, Ahmedabad - 380007

Tel: +91-079-26589600/02/03 | Mobile: +91-9909984900, 9714105770, 9714105771

Email: bdurgaprasad@taxmann.com, sales.ahmedabad@taxmann.com

Hyderabad: 4-1-369-Indralok Commercial Complex Shop No. 15/1 - Ground Floor, Beside Hotel Jaya International Reddy Hostel Lane Abids Hyderabad - 500001

Mobile: +91-9391041461/09322293945 | Email: bdurgaprasad@taxmann.com, sales.hyderabad@taxmann.com

Pune: Office No. 14, First Floor, Prestige Point, 283 Shukrwar Peth, Opp.Chinchechi Talim, Nr. BSNL office, Bajirao

Road, Pune - 411002

Mobile: 9822411811, 9834774266, 9322293945 | Email: sales.pune@taxmann.com

For Contact & Assistance: Tel. : +91-11-45562222 | E-mail : support@taxmann.com, sales@taxmann.com

www.taxmann.com Follow us