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Proposal to impose GST on contest entry fees for online gaming to cost revenue loss of over Rs. 10,000 crore
The 48th Goods and Services Tax (GST) Council meeting to be held by videoconferencing on 17th December may discuss changes in the valuation mechanism and rates for taxing online gaming, casinos and horse racing, although it is unlikely that a discussion may be reached in the upcoming meeting. The decision taken by the GST Council based on
the pending report of the Group of Ministers (GoM) tasked with preparing a report on the subject may seal the industry’s fate. Most major companies are said to be waiting for the outcoming of the GST Council on the manner and valuation of taxing the industry as well as relief from courts on the existing claim of 28% on full entry fees by the revenue department, which is said to be investigating various online poker, rummy, fantasy sports and casino companies and has even issued a show-cause notice of a whopping Rs. 21,000 crore to a leading online rummy company. While taxing all three sectors, viz., online gaming,
horse racing and casinos, at the highest possible tax slab of 28% is probably now fait accompli, the quagmire about valuation still persists. It has been reported that some states, such as Uttar Pradesh and West Bengal, have been pushing for a 28% tax on the full value of contest entry fees or face value of bets as opposed to the online platform fee, which has been elaborately discussed on several
occasions; will only result in the debilitation of a sunrise sector, erosion of value for all stakeholders along with loss of jobs in the gaming as well as ancillary industries. According to calculations based on industry
reports such as EY-FICCI, Team Lease, Lumikai, ASSOCHAM and several others, the online gaming industry is expected to reach around Rs. 20,000 crore by next financial year, and if it continues to pay taxes as the current rate of 18% on platform fees (or gross gaming revenue) it will contribute Rs. 3,600 crore to the exchequer. Notably, the tax contribution will only grow by over 20% year-on-year as the industry sees a robust Compounded Annual Growth Rate (CAGR) of upwards of 20%. Notably, if the tax is increased to 28% on the
Gross Gaming Revenue (GGR), which most of the industry has quite fairly agreed to accept, the industry may still see a hit as it recovers from funding crunch and state bans; and the estimated GST receipts may go down by around 20% for the first year but see robust recovery and growth of 15-20% every year thereafter. However, if the GST Council opts for the worst
possible option for the industry and taxes the full value of each bet or entry fee at 28%, the consensus amongst experts and top executives of gaming companies is that the sector will
immediately see a drastic decline of more than 90% and hardly Rs. 2,000 crore will be wagered annually. As studies globally have shown, heavy taxation or bans does not curb online gaming, but the activity merely shifts underground. Thus, tens of thousands of crores worth of online games will still be played in India, but the activity will be through illicit channels, black money and offshore operators, essentially garnering zero tax for the government. One hopes that the GST Council and mandarins
in the finance ministry realize that illogical entry fees or face value taxation will only cripple the online gaming sector, push the sector underground and ultimately result in thousands of crores of revenue loss for the government. The GST Council would be best advised to avoid this taxation option which would result in all stakeholders, including the government losing out in the long run.
BJP MP Sushil Modi demands legislation to curb paper lotteries, online betting
Sushil Kumar Modi, a BJP member of Parliament (MP), has urged the government to pass laws to outlaw paper lotteries and online betting due to their detrimental effects on youth and children. Modi claimed that although paper lotteries have been outlawed in 15 states and all union territories, they are still lawful in Kerala, West Bengal, Punjab, and certain northeastern states as a special mention in the Rajya Sabha. Modi said, “I request the government to bring
suitable legislation for curbing the menace of lottery and online betting to safeguard the economic and social interest of the people.” Speaking on the matter, Modi also claimed that online betting and paper lotteries both have major socioeconomic effects saying, “Moreover, such
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exploitative platforms also affect the nation’s children and youth,” the BJP MP added. In the fiscal years 2021 and 2019, respectively,
the Kerala and West Bengal governments received Rs 4,911 crore and Rs 1,027 crore in revenue from paper lotteries, according to Modi. “The functioning of paper lotteries and online
activities adversely affect the economically weaker section of the population since they are more likely to purchase lottery tickets in a bid to secure monetary benefits.” “Online betting platforms entail many associated
risks ranging from addiction, debt creation and debt trap, disassociation from family life and society, medical illness, and aggression to loss of life. Such
betting has significant socio-economic ramifications. In Kerala, the amount spent on lotteries increased from Rs 625 crore to Rs 12,000 crore between 1967 and 2020,” Modi told the Rajya Sabha. Recently the Home Ministry appealed to states
and Union Territories, asking them to repeal the Public Gambling Act of 1867 and to make better laws for all types of gaming. This new act may be able to help paper lotteries and online betting in control.
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