On the 5th of January, Kerala’s governor Arif Mohammed Khan signed into effect an order that caught the eye of every gaming enthusiast and industry stakeholder within the state. The announcement? A considerable hike in the state’s Goods and Services Tax (GST) on gambling, raising the rate from 18% to a substantial 28%. This leap in taxation is not merely a regional change but falls in line with amendments to the Central Goods and Services Tax Act of 2017 and the Central Goods and Services Tax (Third Amendment) Rules, both modified within the second half of 2023.
The ramifications of this financial adjustment are particularly felt in online gambling circles, as it targets the sums paid to, or deposited with, any online gambling entity. This includes an array of gambling formats from casinos to horse racing and online gaming. Yet, according to legal experts at Nishith Desai Associates, the GST should arguably be levied solely on the platform fee, which is a matter of contention.
The Central Government of India, through its finance minister, has indicated an intent to revisit the soaring 28% rate after a six-month period. In the interim, the enactment of the GST is already in progress, as confirmed by Khanna, who noted that states, such as Kerala, are either adopting the rate or actively drafting legislation to do so.
One palpable concern is if a 28% tax will deter participation in the state’s gambling sector. While Khanna concedes that it may dissuade smaller operators and nascent gaming startups, she maintains a confidence in the market’s resilience, attributing it to an already competitive environment.
Yet, the path to standardizing this new GST rate has been fraught with obstacles. Tax authorities are intent on retroactive enforcement, issuing show cause notices to real-money gaming operators under allegations of GST evasion. Remarkably, these notices have been served to 71 operators, with the combined total of the allegedly evaded tax amounting to an eye-watering ₹1.12tn.
This pursuit of retrospective tax collection is a move Sharma deems solely within the mechanisms of the indirect tax system. Sharma elucidates that prior differentiation between taxes on games of chance and on games of skill, marked at 28% and 18% respectively, afforded a distinct taxation regime that is in danger of losing its nuance under current policy shifts.
The show cause notices have met with challenges in Indian Courts, sparking legal battles with next hearings scheduled as far out as April 2024 in the Supreme Court. Khanna speculates that the monumental impact of these notices could eclipse the conversation surrounding the new GST rate’s implementation.
Indeed, the gravity of the legal challenges raises apprehensions within the industry. The Indian Supreme Court has been informed that all pending challenges to the GST before various High Courts will be consolidated under its jurisdiction.
The legal landscape surrounding gaming in India is variegated. For instance, while state-run lotteries enjoy legal sanction, private lotteries do not. Furthermore, games like Rummy have been judicially recognized as games of skill since 1968 and are thus permissible, yet such recognition is not universal across states, Kerala being a prime example.
This lack of centralized mechanism to qualify games as skill-based presents a regulatory gap. Although there were attempts to introduce a co-regulatory mechanism involving self-regulatory gaming bodies (SRBs), these endeavors did not materialize into the designation of SRBs, leaving the regulatory landscape fragmented.
Looking towards the future, a multitude of legal and policy developments is poised to unfold within the Indian gaming market. One particular development to watch is the implementation of the IT Rules and their regulation by the IT Ministry, as well as significant litigations challenging state-led game bans.
Sharma remains optimistic about India’s gaming market, highlighting its potential as an igaming development hub and the increasing accessibility online gaming platforms provide. The government’s commitment to instilling a regulatory framework that preserves consumer interests amid a burgeoning digital landscape is an encouraging sign.
As India’s legal and legislative frameworks straddle traditional notions and modern realities, the gaming industry braces for the repercussions of recent policy changes, waiting to see how this pivotal chapter will shape its future in a country at the cusp of a digital revolution.
