NEW DELHI: The Finance Ministry will likely issue a clarification soon on whether the amendment to GST rules pertaining to online gaming, casinos and horse racing would be implemented retrospectively or prospectively, as per highly placed sources.
Though Finance Minister Nirmala Sitharman recently said in parliament that the new valuation rules would be applicable prospectively, experts say that more clarity needs to be given as the companies are getting tax demand notices for the previous years based on the recent amendment. The GST authorities have issued show cause notices worth over R1.12 lakh crore to online gaming companies for tax evasion so far.
Sitharaman on 19 December while replying to a discussion on the GST (Second Amendment) Bill had said in the Lok Sabha: “A clarification on that levy was issued and according to that 28% is the tax. Whom it will apply to and on whom the incidence will fall has been clearly explained. But, about this particular point on valuation rules, I would like to put on record that the valuation rules to exclude winnings are prospective.”
In its 50th meeting on 11 July 2023, the GST Council recommended imposition of 28% GST on the full face value of bets on online gaming, casinos and horse racing. Earlier, there was no clarity on either the rate of GST or the valuation on which the GST should be levied. So, gaming companies paid 18% GST on gross gaming revenue instead of 28% revenue on full betting amount. Now, after the amendments, GST department is sending tax notices for previous years based on recent amendments.
According to Rajat Mohan, Senior Partner, AMRG & Associates, the need for a clarification on GST applicability in the online gaming sector, particularly after the July 2023 GST Council’s decision to impose a 28% tax on the full bet value, is critical. “Uniformity in tax regulations is crucial to ensure equitable competition in this rapidly evolving industry.
Furthermore, the retrospective application of this tax regime could detrimentally impact India’s reputation as a digitally forward nation, potentially inhibiting foreign institutional investments. Clarity in these tax directives is essential for maintaining the sector’s economic health and upholding India’s global standing,” said Mohan.
Abhishek A Rastogi, founder of Rastogi Chambers, says that any recovery without following the due process of law is challengeable in the writ court.