Will 2022 Bring Clarity For Online Gaming And Betting?

The application of GST levy over online gaming, casinos and horse racing is one of the areas of uncertainty and ambiguity hovering over these industries that marked the past year of 2021, but has a fair chance of getting resolved in 2022. In May 2021, the Central Government appointed a seven-member ministerial panel under the lead of Gujarat Deputy CM Nitin Patel that was tasked to examine GST applicability and valuations of services provided by online gaming and casino platforms, racecourses and lotteries. The panel of state ministers was also to look into the existing legislation and court decisions and recommend changes where necessary. The Group of Ministers (GoM), which was reconstituted in June with the joining of the Minister of Finance of Telangana Harish Rao, was originally given six months to deliver its proposals. The GoM report has not been submitted yet, but is expected soon, and then the GST Council – the apex authority on indirect tax policies in the Union – will have the final decision. Currently, games of chance attract the highest GST rate slab of 28 percent, while skill-based gaming is charged at 18 percent. Platforms charge the tax over their rake fees, or the margin they keep for their services, while the stake amounts or prize money is kept GST free. Nevertheless, winnings are still charged with 30 percent income tax deducted at the source, plus Health and Education Cess. A number of industry stakeholders worry that the GST Council decision might favor the highest indirect tax rate slab of 28 percent being charged over the full transaction amounts at online gaming, betting, and lottery platforms, including over the prize money. Such an outcome would lead to over taxation and will threaten the sustainability of the sector, as was seen from the example of the horse racing industry when 28 percent GST was introduced over the full bet amounts and all services delivered by turf clubs in 2017. While turnovers plummeted threefold, bringing tax revenues down with them, the price hikes caused by the new tax levy led to a rise of black markets and illegal betting. A similar scenario unfolding in 2022 for online gaming and casinos can have consumers who used to look for the best betting sites in India now switch to cheaper and riskier illegal alternatives provided by shady platforms or back-alley bookies.

Legal Clarity Might be Around the Corner as Well

Pending litigations in the high courts of Telangana, Andhra Pradesh and Karnataka are dealing with the legality and constitutional validity of the bans over online gaming adopted by the respective states. In the case of Tamil Nadu, the litigation has reached the Supreme Court and might result in a ruling that could bring clarity at a national level. The high court cases have been instigated over petitions filed by various gaming companies and industry bodies such as the All India Gaming Federation (AIGF). The most recent state-level prohibition on online gaming including games of skill for money came into force in Karnataka on October 5, 2021, through an amendment to the Karnataka Police Act, 1963. Many online gaming operators including Games24x7, HalaPlay, and Ace2Three among others, were quick to geo-block access of residents of the south-western state to their sites. Online fantasy sports platform Dream11 didn’t do it immediately and an FIR was filed against the co-founders Harsh Jain and Bhavit Sheth at the Annapoorneshwari Nagar Police on October 7. The High Court of Karnataka granted relief to the duo against coercive actions by the police including arrest, while petitions against the amendment act were still unresolved. On December 22, hearings were concluded and the Karnataka High Court reserved the case for orders . The parties were allowed to file written submissions if they had any more arguments to bring forward and the verdict is expected soon. In December, the M. K. Stalin-led government of Tamil Nadu filed a petition at the Supreme Court appealing an August ruling of the High Court of Madras which had struck down the state’s gaming ban as contradictory to the constitution. A hearing on the matter in the Apex Court is expected to be listed soon, and an authoritative ruling by the Supreme Court will be binding in the whole union and has the potential to bring long-sought legal clarity for the sector.