Reiterating her stance on 28% GST on the online gaming sector, Finance Minister Nirmala Sitharaman on Tuesday (December 19) said that the valuation rules for levying the tax on entry level bets are prospective in nature. 

“28% is the tax and as to who it will apply to and on whom the incidence will fall is clearly explained…The valuation rule to exclude winnings is prospective. So, I hope there is no confusion on that,” said Sitharaman during a discussion on the CGST (Second Amendment) Bill in Lok Sabha.

The FM made the comments in response  to a query from Biju Janata Dal Member of Parliament (MP) Sarmistha Sethi.

Citing an example, the FM said that if a user places a bet of INR 1,000, a GST of 28% would be levied. However, if the user wins INR 300 and then places another bet of INR 1,300, including the winning amount, then the GST would not be levied on the INR 300 winning amount which has been redeployed.

On the other hand, if a user loses the original INR 1,000 amount and places a new bet, then the new amount would be considered a fresh bet and would attract 28% GST.

At the centre of this row is the GST Council’s decision, in August this year, that said that 28% GST is applicable on online gaming. 

Eventually, the government notified amendments in law and the new changes came into effect on October 1. But the bone of contention appears to be the tug of war over the supposed retrospective effect of the rule. 

Since the promulgation of the new law pertaining to GST on online gaming, enforcement agencies have sent a flurry of notices to online gaming platforms for alleged tax evasion. 

The Centre recently informed the Parliament that the Directorate General of GST Intelligence has issued notices to the tune of INR 1.12 Lakh Cr to multiple online gaming companies for alleged short payment of taxes.

Meanwhile, the 28% GST has triggered an adverse domino effect on the homegrown ecosystem. When the new tax was levied, industry stakeholders had warned that the move could lead to job losses and put a spanner in the works for the budding ecosystem. 

Since then, startups such as Fantok, Quizzy, OWN have temporarily shut operations while big names such Mobile Premier League and Hike have laid off employees in droves. There have also been a barrage of legal cases filed by online gaming firms such as Games24x7 and Head Digital Works challenging the respective GST notices issued to them by the enforcement agencies. 

The regulatory flux has also resulted in the drying up of capital for online gaming firms, leading to layoffs and shutting down of ailing verticals to extend runway and conserve cash. Amid the tussle, the Indian government is mulling extending an olive branch to the ecosystem and is considering setting up a Group of Ministers (GoM) to address issues related to the industry.