The GST Council has clarified that the proposed 28% tax rate on online gaming will be applicable to the actual cash or equivalent deposits made by players on an online gaming platform, not on the winning amounts being redeployed. This decision, set to be implemented on October 1, has been met with both relief and concern within the industry.
The decision to levy a 28% tax on online gaming was made on July 11, with the implementation date expected to be October 1. The tax will be uniform, making no distinction between games of skill and chance. Finance Minister Nirmala Sitharaman has stated that the enabling provision for this taxation is likely to be taken up in the ongoing session of Parliament.
The GST Council has agreed to review the impact of this higher GST on online gaming after six months of its implementation. This decision came after appeals from states like Goa and Sikkim, which sought consideration due to their smaller size. The review will provide insights into how the new tax rate is affecting the industry.
While the clarification on the applicability of the tax rate has provided some relief, smaller start-ups are expected to be “very badly hit” once the higher GST comes into force. The problem remains that the GST is being levied on a value much higher than the actual revenue earned by online gaming platforms.
The GST Council has also recommended specific provisions in the Integrated GST Act, 2017, to articulate that suppliers of online gaming located outside India are liable to pay GST. Additionally, any money paid out in the form of Virtual Digital Assets will be liable to a GST rate of 28%. The same valuation mechanism for casinos and online gaming has been welcomed by the industry.
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