Arif Mohammed Khan, the governor of Kerala, officially approved an order to increase the state’s goods and services tax (GST) on gambling from 18% to 28%. Applicable to payments and deposits, the GST encompasses online casinos for Indian players, horse racing as well as online gaming. However, Nishith Desai Associates argue that the GST should only be applicable to the platform fee.
Khan’s decision to implement the 10% tax increase coincides with amendments to the Central Goods and Services Tax Act 2017 and the Central Goods and Services Tax (Third Amendment) Rules 2023, which were enacted in August and September 2023. The central government of India has additionally confirmed that the new rate will undergo an internal review after six months.
The GST council has specified that the tax should be calculated based on the face value of the bet. The ordinance’s objective is to address certain ambiguities in the existing GST law related to monetary betting, encompassing provisions for online gaming, casino betting, and horse racing, as previously articulated by the government.
Furthermore, adhering to state law, other Indian states will also adopt the revised GST rates. However while the 28% rate might face resistance due to its high nature, industry insiders believe that it will not significantly impact India’s thriving gambling market, albeit potentially discouraging smaller operators and gaming startups.
Mass Adoption
Unsurprisingly, the implementation process for the new GST rates has encountered significant challenges. India’s tax authorities are attempting to apply the 28% rate retroactively, issuing show cause notices to operators involved in real-money transactions, alleging evasion of GST.
Media reports indicate that notices have been sent to 71 operators, totaling ₹1.12 trillion. However, it has been clarified that GST is specifically designed for the indirect tax mechanism. Previously, distinct GST rates of 28% on games of chance and 18% on games of skill established a differentiated regime within indirect taxation.
As per notices from the GST department, they assert that the tax is to be paid from 2017, treating the notification as a clarification rather than a new imposition. The challenge lies not solely in the heightened GST percentage, as it is expected to be balanced out by the GST through its inputs. However, the intricate aspects of retrospective imposition and considerations related to face value bets have created a complex situation, imposing a considerable financial burden on the market.
Anticipated legal challenges against the GST rate are set to escalate, with the government expressing its intention to transfer all pending GST challenges from High Courts to the Supreme Court. Consequently, the issue is poised to reach a culmination this year in India’s apex court, leading to substantial business implications.
Turning Point
In India, state-run lotteries operate legally under an independent central law, while private lotteries are expressly prohibited. Rummy gained official recognition as a game of skill in 1968, but this acknowledgment is not acknowledged in the state of Kerala.
Moreover, Kerala does not recognize court directives affirming rummy and horse racing as skill-based games, along with the central government’s assertion that online gaming falls under the jurisdiction of the central government rather than the state.
Many Indian states exempt games of skill from gambling-related restrictions and Indian courts have constitutionally protected the offering and playing of such games. However, a standardized mechanism to determine whether a game qualifies as a skill-based game has not been universally established, with only a few states enacting laws to categorize specific games as skill-based.
Given the emergence of various innovative skill gaming formats, the necessity arose to establish a regulatory framework for promptly and efficiently classifying new games as skill-based. Consequently, the Information Technology Rules were modified to incorporate a co-regulatory mechanism involving self-regulatory gaming bodies (SRBs). Under this arrangement, registered bodies are tasked with verifying games as permissible.
What’s Next?
Observing the unfolding situation with the show cause notices and the implementation of the GST rate, there are several significant developments on the horizon for the Indian market in 2024, including the forthcoming implementation of the new IT rules.
Moreover, the High Courts of Tamil Nadu and Karnataka rejected bans on skill games deemed unconstitutional by their respective state governments last year. These decisions have been contested by the state governments in the Supreme Court. Consequently, the Supreme Court may play a role in determining the constitutional validity of prohibiting games of skill, influencing state policies concerning such games.
The general consensus remains, however, that the continued growth and resilience of India’s gaming market will remain optimistic despite the increased GST.
Author’s Bio:
Hello there, I’m Saanvi Kumar, site editor at a top marketing affiliate site. I’ve been working in the online gambling sector for over two decades – and I can honestly say, I’m in my element! My job revolves around mentoring a team of content writers and editors, and ensuring above-standard content is published. Aside from this, I’m also in charge of writing numerous in-depth articles and guides so that readers are kept in the loop and well informed. When I’m not working, I enjoy reading, meeting up with friends and binge-watching the latest trending series or movie!