Mahiyar Patel, Pune
A new taxation system for online gaming is going to come into force from October 1st. The taxation system brings a flat tax rate of 28% on the total value of the bet being made. According to the change in the Integrated Goods and Services Tax Act (IGST), all foreign online gaming companies would have to register their operations with the government and pay 28% on each individual bet. What has changed for the online gaming and betting industry is that the GST council in their meeting in July decided to club horse racing, casinos, and online betting together with a uniform GST rate.
Taxation in India is in the concurrent list of powers of the executive, with both center and state levying taxes. Each state in India has its own state GST law which would be required to be amended for the new tax regime to come into effect. 15 states have yet to pass the amendment required.
To further illustrate how the new taxation system will work for digital gaming and betting companies; suppose a person decides to purchase a particular bet for 100 rupees he will immediately have to pay 28% on the full face value of the bet. The individual will not be taxed on their winnings, but if they decide to reinvest their winning with another chance they must pay 28% again on the purchase of the stake. This compounding effect of the new taxation system would make the consumer pay 56% on his online gaming activities.
A similar taxation system for casinos was suggested to the GST council, but it was rejected on the basis that it would hurt the financial viability of the establishments. In the present system for all casinos, there is a one-time GST of 28% on the purchase of chips or credit from the casino and that’s it. The consumer can choose to redeploy his winnings any way he chooses or cash out if he wants.
The change to the IGST also gives the government the power to impose penalties and even potentially block gaming platforms registered overseas that do not conform to the new regulations.