Shares of listed companies such as Nazara Technologies and Delta Corp would be in focus on Wednesday morning after the GST council proposed to levy GST at 28 per cent on the face value of the chips purchased in the case of casinos and on the full value of the bets placed in case of the online gaming.
The decision to levy 28 per cent on gross value in case of online gaming and casinos is perhaps not what the industry was hoping for, said Pratik Jain Partner Price Waterhouse & Co LLP.
"While it has been indicated that this proposal is 'clarificatory' in nature, it would have better to make it prospective to put the past dispute to rest," Jain said.
Kishore Kumar, Lead, Indirect Tax at Taxmann said the domestic gaming industry witnessed a remarkable growth in recent times and was growing at a CAGR of 28-30 per cent. But, he said, it is now saddled with the decision taken in the 50th GST Council Meeting with regard to its taxability.
He said India is probably the only country to levy GST on full face value on all categories of online games. The blanket proposal to levy GST on full face value on online gaming will possibly put an end to the sub judice debate of ‘game of skill’ vs ‘game of chance', he said.
"This change will bring game of skill at par with wagering contracts, which are in the nature of gambling and betting. From a revenue perspective, the proposed amendment may significantly contribute to the Government exchequer and will make states like Goa and Sikkim important from revenue generation perspective. This change will require host of amendments under the GST law especially with respect to the definition and taxability of actionable claims under GST. What remains to be seen is whether this change is going to apply prospectively or have a retrospective impact," Kumar said.
Announcing the decisions, Finance Minister Nirmala Sitharaman, who chairs the GST Council, told reporters in New Delhi that some amendments to the GST Act will also be made to include online gaming.
Section 3 of the GST Act will be amended to bring online gaming and horse racing as taxable actionable claims. The bill is likely to be introduced in the Monsoon session of Parliament.
Gouri Puri, Partner, Shardul Amarchand Mangaldas & Co said: “This is a major setback to the online gaming industry. Taxing the prize pool at 28 per cent may impact gaming volumes and viability of gaming companies that were up until now growing impressively. This sends mixed signals to investors, considering that recent policy changes to regulate the online gaming industry had recognised its separate status and economic potential."
It will be interesting to see the business impact for the online gaming sector considering that this sector has been touted to have significant growth potential, said Shilpy Chaturvedi, Partner at Deloitte India
Moreover, the GST council has recommended to remove the critical distinction between game of skill and game of chance, which has always been a determining factor in applying rate of tax and valuation, Chaturvedi said.
“We are disappointed that the GST Council and authorities have chosen to apply 28 per cent GST on the total entry amount including prize money. This decision will have a chilling effect on the $ 2.5-billion FDI already invested by investors and jeopardise potentially any further FDI in the sector. Further, this decision will shift users to illegal betting platforms leading to user risk and loss of revenue for the government," said Joy Bhattacharjya, Director-General, Federation of India Fantasy Sports.
Abhishek Jain, National Head & Partner, Indirect taxes, KPMG also noted that while the detailed amendment would need to be evaluated, the move for levying 28% GST on full value is much against the industry expectations. "This recent growing sector was expecting relief with clarification on GST only being applicable on the platform fee earned by them," he said.
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