The topic of GST on real-money gaming has been a hot-button issue for over a year, eliciting considerable anxiety across the industry. In a recent move that landed as a substantial blow to the online gaming, casino, and horse racing sectors, the GST Council, during its 51st meeting held virtually on August 2, settled on a 28% tax on all initial deposits.
While the consequences aren’t as catastrophic as those of the 28% tax on all contest entry fees, which was deliberated during the 50th GST Council meeting, the implications of this decision remain significant and far-reaching for all involved parties, including operators and players. However, the move has stirred widespread confusion regarding the potential implications for the industry and the road ahead.
To shed more light on this matter, we brought in Jay Sayta, a legal specialist in online gaming, to dissect this intricate subject in Episode 2 of the PokerGuru Podcast.
Sayta, in an all-encompassing discussion with PokerGuru`s Saumya Paithankar, sketches the landscape to expect in the aftermath of this verdict. He touches on topics such as the government’s plan to revise the CGST Act, an estimated timeline for the amendments to take effect, the likelihood of the Council revisiting this decision, and potential legal countermeasures for the industry. Furthermore, he cautions about the potential transformation of India’s gaming industry without substantial backing from stakeholder states.
The conversation explored possible reactions from operators, such as absorbing the tax on deposits by increasing rake and reducing bonuses and other giveaways. Sayta predicts a consolidation wave, with smaller operators possibly succumbing to pressure. Professional player winnings, marketing budgets, and workforce dynamics might also feel the impact of these regulations.
Despite the challenges, Sayta expressed confidence in the industry’s resilience and unity. With the upcoming general elections in 2024 and gaming recognized as a sunrise sector, his insights offer both a sobering reality check and a glimmer of hope for a sector teetering on the brink of a significant transformation.
Watch the complete episode below:
Here is a timeline of the interview highlights.
1:16 – Discussing the immediate repercussions of the GST Council’s decision, Sayta emphasized that the Council has only made recommendations to the Union and state governments, along with Union territories. These suggestions call for specific changes in the CGST and SGST Acts, but at this stage, they are merely recommendations.
2:13 – As far as the next step is concerned, Sayta mentions the Central government will have to introduce the related legislation in the Parliament, possibly in the next week itself, and all the states will also have to pass similar Acts for the next tax regime to come into force.
2: 39 – Certain changes to the rules and notifications to the Act are required, and the Finance Minister has indicated that they plan to do this rapidly and try to complete the process by October 1.
3: 54 – Sayta said assuming the required legal process is completed by October 1, everyone, including gaming companies, would have internally initiated the process to transition to the new tax system. However, he feels enforcing the new tax regime could take longer.
4: 39 – Sayta clarifies that once the amendments are brought into force, the Parliament passes the Law, and the President approves it, there is a high likelihood these will be legally and constitutionally challenged.
5: 13 – Sayta believes some gaming companies or federations might approach the court, resulting in litigation on the issue.
5:57 – Sayta pointed out that there have been mixed views. He says the entire industry is not totally opposed to the move. Many larger operators would be less affected and have the financial stability to absorb this hit and pay GST on deposits.
6:23 – For players, this means an expected increase in rake, a reduction in the prize pool, and a decrease in ROI. Bonuses and rakeback they enjoyed before will likely be reduced. Companies may also bear some of the burden, as they might absorb the higher GST by taking a hit on their profitability and margins rather than pass on the entire tax to players. The result for players could be a higher rake and lower bonuses and cashback.
7: 12 – Sayta says that larger operators would be in a position to tide through this and absorb this burden. Smaller companies would face challenges, and some may even shut shop.
7:34 – According to Sayta, the exact impact will be known only once the changes are rolled out. Still, he sounded confident that there will be some consolidation in the number of companies operational in the gaming space.
8:08 – There could be a review of the decision or a legal reprieve, but at the same time, Sayta doesn’t see a total shutdown of the industry. At the same time, there will be some sort of consolidation. Seeing the changes will take 6-12 months or even more.
9:20 – Talking about possible solutions of permitting player-to-player transactions and cross-platform transactions, Sayta pointed out this is a complicated topic since specific RBI guidelines need to be considered on B2B transfers, and sites would be operating like semi-closed wallets, requiring licenses, etc. Moreover, such transfers could also be termed as deposits by RBI.
9: 57 – Sayta said there is no incentive for companies to allow across-platform player-to-player transfer and let the liquidity flow out of their sites, underlining that this doesn’t seem like a very practical or feasible option at the current stage.
11:15 – Sayta reiterated that a reduction in rake doesn’t seem to be on the cards. On the contrary, the rake may be increased if the sites are to allow players to continue playing with their total deposits.
12:09 – Sayta predicts that an increase in rake may lead to players migrating to offshore platforms, depending on the player retention policies that the operators follow.
12:40 – He reiterated that the GST Council clearly stated that the government will act on foreign operators who do not pay tax, or else it will try to weed out such operators.
13:08 – Sayta admitted with every increase in rake, and consequently in player winnings, there is likely to be a reduction in player traffic and engagement.
13:46 – Sayta mentions that if the GST Council had decided to increase GST on GGR, that would have been the optimal move for all parties concerned. Sayta said right now, platforms are paying 18% tax on GGR, so 28% would mean a 55% increase in tax, but most companies would have been able to absorb the impact by reducing and rationalization on certain costs. Unfortunately, the GST Council rejected the option, but it is open to reviewing the terms in the future.
14:49 – Sayta said 28% GST on GGR is the most ideal solution, voicing optimism that the Council may adopt the same in the future.
16:00 – Sayta said it’s too early to predict that the government’s GST collection from this move will drop. The exact math will become evident only after user behaviour patterns are clear. Marketing and advertising budgets will definitely be slashed.
17:15 – As for the possibility of the GST Council retracting its decision over time, Sayta highlights it as a wait-and-watch scenario, and the support that the issue gets from different stakeholders will decide the road ahead. Goa and Sikkim were very vocal in their dissent on the decision. Delhi also supported a rethink on high GST on online gaming.
18:05 – Sayta mentions that the gaming industry should be prepared to pay a fair share of taxes.
19:35 – Sayta said that the player community is resilient, has adapted to changes in the past, sidestepped state bans, etc., and feels confident that it will flourish and continue to play on the platforms, will survive and sustain even in such an environment.
20:20 – On a parting note, Sayta reiterated that it is important not to look at the situation negatively. The industry will likely adopt, and so will the players, so things should be taken positively.
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