Even as the Goods and Services Tax (GST) Council takes a political call on the vexed issue of tax rate and the base on which it will apply to online gaming in the upcoming Council meeting, the revenue department will appeal the recent Karnataka High Court ruling that quashed a Rs 21,000-crore show-cause tax notice issued to Bengaluru-based Gameskraft Technology Private Ltd (GTPL). “The appeal will be filed soon against the Karnataka High Court order. Also, similar cases pending in other high courts will also be clubbed in the appeal before the apex court,” a senior official told FE.
The appeal has to be filed before the Supreme Court within three months of the high court order. While the Karnataka High Court order came in mid-May, there are similar cases pending before the Punjab & Haryana High Court, Rajasthan High Court and Tamil Nadu High Court, among others.
“While the appeal is a normal course of action, once the GST Council takes a decision on how to tax online gaming, the relevant changes in legislation if any may be undertaken to reflect the decision of the Council,” the official added. The Council will likely meet by the end-June or early July.
The Directorate-General of GST Intelligence (DGGI) has held that GTPL’s platform offered betting and gambling activities worth Rs 77,000 crore between 2017 and June 30, 2022, which the company has contested, saying these were skill gaming activities and not betting.
DGGI had served a hefty Rs 21,000 crore tax notice to GTPL for not collecting GST on the entire consideration of betting at the rate of 28%.
The issue of taxation of online gaming has been hanging on fire for the past two years with a group of ministers (GoM) on casinos, race courses and online gaming failing to arrive at a consensus on changing its earlier recommendation of a uniform 28% tax on the full value of the consideration on all the three.
This GST Council will discuss both the report of the GoM in its next meeting and whether to go for a 28% GST on online gaming on the full value including prize money, both for skilled and unskilled games, from 18% only on platform fee now.
The GoM, in its first report in June, had recommended that in the case of online gaming, the activities should be taxed at 28% on the full value of the consideration, by whatever name such consideration may be called, including contest entry fee, paid by the player for participation in such games. Since GST is levied on online skill-based gaming at 18% currently on the platform fee (up to 20% of the contest entry fee), the tax incidence on the gaming industry will rise if the proposal is implemented.
On the question of whether horse racing, casinos and online gaming are activities of games of skill or chance, the general view of the Central government officials have been that this should not be relevant for the GST regime like in the virtual digital assets (VDAs) for income tax. In the FY23 Budget, the Centre imposed a 30% income tax on gains from VDA transactions even though the debate is still going on whether to ban these private virtual currencies/assets or regulate them.
Analysts said the GST Council might categorise actionable claim as ‘services’ by putting them under Section 7 of the CGST Act for taxation purposes without getting into the debate of games of skill or chance.