Offshore gaming companies have faced scrutiny time and again with the information and broadcasting ministry issuing advisories against advertising their services. Interestingly, some platforms have also used social media influencers to promote ‘no tax, no GST’ offers amid confusion over whether gaming would be subject to the goods and services tax. However, the recent August 2 GST Council meeting has clarified that international platforms will also be subject to tax. The question remains whether this will lead to increased freedom for betting platforms to operate. Experts have differing opinions on the matter.
The recommendation
The council recommended inserting a specific provision in the Integrated Goods and Services Tax Act, 2017, to provide for liability to pay GST on the supply of online money gaming by a supplier located outside India to a person in India, for single registration in India for the said supplier through a simplified registration scheme and also for blocking of access to any information generated, transmitted, received or hosted on any computer resource used for supply of online money gaming by such supplier in case of failure to comply with provisions of registration and payment of tax.
“One cannot be sure about the capability of the government to enforce an effective ban on offshore gaming companies, who in the garb of gaming conduct betting as well. For example, the government has banned transmission of adult content in India, yet it is easily available. Given the history of enforcement of such borderless transactions, would it be too difficult for the offshore companies to find ways to circumvent government controls and, in the process, evade GST as well?” asked Kamal Agarwal, senior partner, GST, at law firm Singhania & Co.
To top it, income from offshore gaming could evade income tax as well.
How are betting companies operating in India?
Considering that betting is prohibited in many states in India, offshore betting companies introduce either surrogate businesses or brand extensions (such as gaming platforms, news portals, etc.) in order to promote their platforms and woo users.
For quite some time now, companies like 1XBet, DafaBet, Fairplay, Parimatch and Betway have been ramping up their advertising efforts in India, coinciding with action-packed events like the Indian Premier League cricket season, FIFA World Cup and others. In fact, they have been using the GST chaos for moment marketing purposes as well. Platforms like Fairplay have been using influencers to promote features such as ’24X7 winning withdrawal, no GST, and referral code bonuses’.
It would be interesting to see if these initiatives stop after the government clarification.
Imposition of tax has no bearing on its legality
Sudipta Bhattacharjee, partner, indirect taxes and customs at law firm Khaitan & Co, said that the GST Council has recommended changes in the law to plug legal loopholes to ensure similar 28 percent GST levy on offshore online gaming companies so that they are not at a massive advantage compared to Indian online gaming companies.
“This was a specific concern highlighted by the Indian online gaming sector. This doesn’t per se mean that betting will be legalised—it is well-understood in law that merely taxing an activity doesn’t make it legal or illegal. Even when taxation provisions were introduced vis-a-vis cryptocurrency, it was clearly stated that imposition of tax has no bearing on its legality,” Bhattacharjee said.
GST, a leveller for betting, gambling, gaming?
The GST Council has made it very clear that there will be no distinction made in games of skill and games of chance. Stakeholders believe naïve users will now put everything under one umbrella and ignore the clear distinction between the two and that may lead to undesirable consequences such as fraud, loss, addiction and others unfavourable outcomes.
“It is evident that the government is firm on its position that online gaming, horse racing and casinos would be treated at par with betting and gambling for the purposes of GST. A conscious decision has been taken to not differentiate between ‘game of skill’ and ‘game of chance’ and, therefore, an SLP (special leave petition) has been filed before the apex court challenging the judgment of the Karnataka High Court in the case of GamesKraft Technologies Pvt Ltd,” said Saket Patawari, executive director, indirect tax, at tax consulting and accounts servicing firm Nexdigm.
Under Article 136 of the Constitution, the Supreme Court has the discretion to grant special leave to appeal against any judgment, decree, determination, sentence or order passed by any court or tribunal within India. This process is known as an SLP.