Mudra Compass

The dispute over the application of a 28% GST rate to online games has the government and the gaming industry in a contentious standoff, with the Supreme Court now the center of attention

The implementation of a 28 percent GST (Goods and Services Tax) on the entire amount wagered in online money gaming starting from October 1 is sparking a disagreement between two opposing viewpoints. The gaming industry contends that this tax should only apply to future transactions, while the government insists that it’s simply a clarification of an existing law that has been in effect since 2017.

All eyes are focused on the Supreme Court as it prepares to hear the Center’s appeal against the Karnataka High Court’s decision to invalidate a ₹21,000 crore GST notice issued to GamesKraft. Nearly all participants in the gaming industry have claimed to have received tax demands.

There are two main points of contention: the first concerns whether the law should apply to future transactions or past ones, and the second revolves around the method used to calculate the tax. In an interview with BusinessLine after the GST Council’s meeting in July, Revenue Secretary Sanjay Malhotra stated, “From our perspective, the GST rates for online gaming, casinos, and horse racing have always been 28 percent of the face value. Therefore, the question of retroactive changes doesn’t arise, as this is merely a clarification.”

Sudipta Bhattacharjee, a Partner at Khaitan & Co., has noted that although the amendments in the CGST Act and Rules do not explicitly state that they apply retrospectively, the government’s stance is that they are merely meant to provide clarification. This position is taken to argue that, while not formally retroactive, these new GST provisions have, in practice, been applicable since July 2017.

Tanushree Roy, Director-Indirect Tax at Nangia Andersen India, has expressed a different perspective. She believes that the government’s assertion that the proposed amendments are only clarificatory will be put to the test in the Supreme Court’s examination of the GamesKraft case. If the court determines that these amendments are not merely clarifications but substantive changes, then they would be applied prospectively, going forward.

Tax authorities have made it clear that a 28 percent GST is to be applied to the total value of bets made in the context of online money gaming. Presently, the gaming industry is imposing an 18 percent GST on platform fees, which is essentially the gross gaming revenue collected from gamers. According to Roy, these platform fees typically vary and typically range from 7 to 20 percent of the total amount contributed by gamers on these platforms.

Since the Supreme Court has put a hold on the Karnataka High Court’s decision, the Tax Department is sending out notices based on disagreements in the calculation of taxes.

The government has decided to waive the 5% integrated GST on ocean freight imports starting from October 1

Starting from October 1, the government has eliminated the 5% integrated GST (IGST) on payments made for goods imported via ocean freight. The Finance Ministry has officially updated the IGST Act to reflect this change in how IGST is paid on “ocean freight” for imported goods. Previously, importers were obliged to pay 5% GST through the Reverse Charge Mechanism.

Abhishek Jain, who is the Head of Indirect Tax at KPMG and a Partner, stated that the proposed amendments are in line with the Supreme Court’s judgment in the Mohit Minerals case and serve to explicitly state the government’s alignment with that position.

Jain also mentioned that while these changes have been introduced for the future, the industry has been successful in seeking and obtaining refunds for taxes already paid in the past, particularly when tax credits were not utilized.

Regarding the Mohit Minerals case, the Supreme Court, in May of the previous year, ruled that the Indian importer is responsible for paying the Integrated Goods and Services Tax (IGST) on the ‘composite supply,’ which includes both the supply of goods and the supply of services such as transportation and insurance in a CIF (Cost Insurance Freight) contract. Consequently, imposing an additional tax on the Indian importer for the ‘supply of services’ by the shipping line would be a violation of the GST Act.

In the case of Mohit Minerals, the company contested the validity of the Central Board of Indirect Taxes and Customs (CBIC) notification concerning the imposition of IGST on ocean freight in the Gujarat High Court. The Supreme Court upheld the High Court’s decision.

(Source – Business Standard and other genuine online sites)