Bringing GST in the Indian Gaming Sector in line with global practices
Lottery, horse racing, casino and the gaming industry at large has contributed substantially towards state reserves in the past decade in India. The contributions from the gaming industry can be attributed as one of the reasons why certain essential commodities, such as fuel prices, could be offered with a relatively lower state tax. The economic damage of the COVID-19 pandemic and resulting decline of commerce have substantially reduced the state coffers in the last 12-18 months. As a result, such contributions are more meaningful than ever.
In states where gaming is licensed, such as Goa and Sikkim, the situation has been dire even before the pandemic, since the advent of GST in 2017 and imposition of tax of 28% on the face value of the lottery ticket or the amount bet (vis-à-vis horse racing and casinos) – a rate of tax which is one of the highest in the world in the industry. This has led to two blatant outcomes, the first being the revenue of the states where gaming is regulated has declined substantially; second, a thriving unregulated and illegal industry has emerged, which besides financing crime, also does not make any contributions to the state government’s revenues. For instance, the impact on the horse racing industry can be seen with a near 50% fall in the total turnover, from INR 3954 Crores in FY 2016-17, to INR 1917 crores in FY 2018-19 to INR 1100 crores in FY 2020-21. This has also been recognised by the GST Council in the Detailed Agenda Note for the 37th GST Council Meeting.
It is therefore a welcome step that the Ministry of Finance, Government of India has taken on 24th May 2021, to deliberate on this issue through a Group of senior ministers, stalwarts from the state governments of Gujarat, Maharashtra, Arunachal Pradesh, Goa, Karnataka, Tamil Nadu and West Bengal. Their terms of reference indicating that they would consider:
- the valuation of services provided by the casino, race courses and online gaming portals;
- if a better mode of valuation could be arrived at; and
- administration of such a valuation provision.
While the highest rate of tax, i.e. 28%, is likely to be retained, considering that gambling/gaming has been considered as a sin tax and as per the terms of reference, the rate of tax is unlikely to be discussed. However, issues that could be considered are:
- GST should be levied based on gross gaming revenue (i.e. the total gross takings less the cash payouts to winners) by the operator of the game for a tax period and should not be levied on the gross collections or on face value, as per the current regime;
- It may also be considered that where cash payouts are more than the gross collection in a tax period, the excess amount should be allowed to be carried forward to any subsequent tax period for set off against the gross collections of such tax period;
- In a gaming transaction (whether a table game or online games) the user pays for the service (stakes) up front, and the value added by the casino/gaming activity cannot be calculated until the winners are determined and winnings are paid out. Under GST, tax should only be imposed on the price charged for the gaming service; and
- The valuation rules being deliberated should also consider avoiding GST levy on every single gaming transaction and instead to enable GST levy, to be calculated on a retention basis for each tax period.
If GST is levied only on the commission or gross gaming revenue (as opposed to bet value), it will support employment opportunities within the semi-skilled sectors and importantly multiply revenue earnings for the government and to the agrarian industries (when race clubs ecosystem is considered).
GST on commission would be consistent with global practise. For instance, in the United Kingdom, the current rate of tax on wagering is 15% on the Gross Gaming Revenue; therefore, it is estimated that 95% of the punters bet through regulated platforms/channels. When the rate of tax is higher, like in Greece, where tax on wagering is 35% on the Gross Gaming Revenue, it is estimated that only 72% of the punters bet through the regulated platforms. When a tax is imposed on turnover (similar to GST on face value being imposed in India) for example in Poland the rate of tax being 12% on the turnover (one of the highest but still less than 50% of the tax rate of India), it is estimated that only 40% of the punters use regulated platforms to wager.
It is therefore imperative that the valuation process of imposing GST is corrected. 28% GST imposed on the Gross Gaming Revenue would be in line with global practice and would ensure that state benefits from tax collected through regulated platforms.