Parliament clears 28% GST on online gaming, casinos

Context

Parliament approved amendments to the Central and Integrated GST laws to levy 28 per cent tax on the full face value of bets in online gaming, casinos and horse race clubs.

Background

In July this year, the GST Council recently cleared changes in Central GST (IGST) and IGST laws to levy 28 per cent tax on full face value of bets in online gaming, casinos, and horse race clubs.
It also decided that GST will be levied at face value of entry level bets placed in gaming platforms and casinos.

Key-highlights:

The Central GST (Amendment) Bill, 2023, and the Integrated GST (Amendment) Bill, 2023 make registration mandatory for offshore e-gaming companies operating in India.

Currently, online gaming industry are paying GST at the rate of 18 per cent on platform fees/commission. Such commission varies from 5 to 20 per cent of the full face value of bets.

Non-compliant offshore gaming platforms or websites will be blocked.

With the amendment to GST law, horse racing, casinos, online money gaming will be treated as actionable claim similar to lottery, betting, and gambling.
The amendment in IGST Act gives powers to the Government to notify such goods, so that in case of import of such goods IGST can be levied and collected as regular inter-State supply under provisions of IGST Act.

Important Terms:

Online Gaming: The CGST amendment bill defines 'online gaming' as a game on the internet or an electronic network.
Online money gaming: 'Online money gaming' means online gaming in which players pay or deposit money, including virtual digital assets (VDAs), in the expectation of winning money or VDAs, in any event including game, scheme, competition or any other activity, whether or not its outcome or performance is based on skill, chance or both.

India’s online gaming industry:

The online gaming industry grew by 28 per cent in 2021 to reach USD 1.9 billion, as per NITI Aayog estimates.
Internet gaming has grown in popularity in India, with millions playing games like PUBG, Free Fire, and Call of Duty.
According to the government’s AVGC (Animation, Visual Effects, Gaming, and Comics) task force report, India is expected to become one of the world’s biggest gaming marketplaces.
It has risen steadily over the past five yearsand is expected to quadruple in value to 3.9 billion dollars by 2025.

Online gaming is a State Subject under Schedule 7.

India’s average revenue per paying user (ARPPU)rose 11 per cent to 20 dollars in 2022.

Impact of the amendments:

The amendments will aid in combating money laundering, illegal income, black money and other illegal activities associated with online gaming and curb evasion.
The amendments seek to establish a robust legal framework to avoid legal ambiguities and also to address various concerns of stakeholders.
The amendments will not affect tax on casual online gaming, wherein no real money, betting, or wager is involved.
With the passage of CGST and IGST amendments, states will now have to effect similar changes in their state GST laws in their respective assemblies.

Key drivers of Gaming Industry in India:

Smartphone penetration
Affordable internet
Young demography of India
Introduction of new games with a shorter learning curve

Positives	Negatives
High Revenue generation Boost in start-ups since pandemic Help people to build a professional career and build skills Can provide employment Engage into increasing peer-to peer bonds	Societal concerns 'Internet Gaming Disorder' due to addiction to online gaming. Tax evasions (most apps operate from outside the country) Lack of regulations Absence of framework