SUMMARY
The Ministry of Finance notified amendments to the Central GST law for calculating the value of supply by online gaming platforms
The order also stated that winnings by any player will remain tax-neutral as the entire tax is collected at the first stage itself
The development comes a month after the Parliament approved amendments to the Central and Integrated GST laws to levy a 28% tax on the full face value of bets for online gaming
Putting its rubber stamp on the 28% GST regime, the union government on Friday (September 1) notified amendments specifying valuation methodology to be used by online gaming platforms for calculating tax liability.
Following the GST Council’s recommendations, the Ministry of Finance notified amendments to the Central GST law for calculating the value of supply by online gaming platforms. Further clearing the air, the order stated that winnings by any player will remain tax-neutral as the entire tax is collected at the first stage itself.
The development comes a month after the Parliament approved amendments to the Central and Integrated GST laws to levy a 28% tax on the full face value of bets for online gaming.
Reacting to the development, EY Tax Partner Saurabh Agarwal told news agency PTI that the notification is expected to effectively settle the ambiguity and uncertainty around this matter. He, however, added, “… the aspect of whether the mere deposit of money in a wallet qualifies as a supply is unclear, and may be challenged by the industry.”
This follows the GST Council’s decision to impose a 28% GST on the amount being paid at the entry level for online gaming in July this year. As the government moved ahead with its plans to solidify the levy, Indian online gaming platforms made a beeline, seeking revocation of the proposed plans.
Despite criticism from all quarters of the gaming industry, the Centre stuck with plans and passed the amendments in the Parliament. Since then, the gaming ecosystem has been gripped by crises.
Last month, Mobile Premier League (MPL) slashed half of its workforce to cut corners. This was followed by Hike and Spartan Poker firing employees in droves as they grappled with the tax burden.
On top of that, Inc42 recently reported that more than 20-25% of online gaming platforms are mulling to get acquired or acquihired. An analyst even said that these startups were selling for pennies on a dollar.
As the crisis mounts, it remains to be seen how the industry reacts to the new curveball.
