GST ON ONLINE GAMING & ITS IMPLICATIONS

13 Jul 2023 9 mins Download PDF

UNIFORM 28% GST ON ONLINE GAMING & ITS IMPLICATIONS

Why in the news?

The GST Council has decided to levy a uniform 28% GST on Online gaming, casinos and horse-racing.

What are the new changes?

• The 28% taxation will be applicable on the entire face value of the bet. This is a deviation from the earlier 18% GST on the platform value of the bet.
• Online gaming, Casinos and horse-racing will be added under Schedule III as actionable claims by amending GST laws.

Actionable claims means goods taxable under CGST Act, 2017.

• So far only lottery, gambling and betting were classified as actionable claims.
• There is now no distinction made between game of chance and game of skill.

What are the implications?

• Hit companies that developed game of skills through hard effort by taxing them in parity with gambling.
• Can cause job losses due to negative impact on the companies' growth.
• Likely to dissuade both investors and users.

Online gaming industry in India:

• A unique sector that intertwines both technology and entertainment.
• The revenue of online mobile gaming industry to register USD 5 billion by 2025.
• Only sector in internet economy with high profitable companies.
• Increase in New paying users (NPU) in online gaming is highest in India at 50% in 2021.

 

About GST

The Goods and Services Tax (GST) is a destination-based indirect tax applied on goods and services sold for domestic consumption. It was recommended by the Kelkar Committee setup in 2004 for “Implementation of FRBM (Fiscal Responsibility & Budget Management Act, 2003)”.

• The Constitution of India was amended by the Constitution (one hundred and first amendment) Act, 2016.
• The GST is imposed and collected by the Centre and the States under Article 246A of the Constitution.
• It is a destination-based tax on the consumption of goods and services.
• A destination tax is a tax that would accrue to the taxing authority which has jurisdiction over the place of consumption which is also termed a place of supply.

 

Objectives and need of GST

The reasons for adopting a single rate structure in most countries are to have a simple tax system, prevent misclassifications and litigations arising therefrom, and to avoid an inverted duty structure of taxes on inputs exceeding those on outputs requiring detailed scrutiny and refunds.

 

Features of GST

• It is to be levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as set off.
• Similarly, the Centre levies and administers Integrated GST (IGST) on all inter-state supplies of goods and services.
• CGST and IGST are levied and administered by the Centre, whereas SGST and UTST are levied and administered by the states and UTs.
• A dual GST complies with the Constitution's mandate of fiscal federalism.
• In a nutshell, only value addition is taxed and the burden of tax is borne by the final consumer.
• It is a dual GST, with the Centre and States levying it at the same time on the same tax base.
• The Central GST (CGST) levied by the Centre on intra-State supply of goods and/or services is known as the Central GST (CGST) whereas the GST by the states is known as the State GST (SGST).

 

GST Council The GST Council is headed by the Union Finance Minister, and other members are the Union State Minister of Revenue or Finance and Ministers in charge of Finance or Taxation of all the States. The GST Council is a constitutional body under Article 279A. It makes recommendations to the Union and State Government on issues related to Goods and Service Tax and was introduced by the Constitution (One Hundred and First Amendment) Act, 2016. The council is structured so that the federal government has 1/3 of the vote and the states have 2/3. A 3/4ths majority is required to make a decision. Economic Survey 2017-18 also hailed the GST Council for its cooperative federalism technology, which brings together the Centre and States and can be applied to many other policy reforms.

 

Taxes Subsumed by GST

Central taxes that are subsumed under the GST are:

• Central Excise duty
• Duties of Excise (Medicinal and Toilet Preparations)
• Additional Duties of Excise (Goods of Special Importance)
• Additional Duties of Excise (Textiles and Textile Products)
• Additional Duties of Customs (commonly known as CVD)
• Special Additional Duty of Customs (SAD)
• Service Tax
• Central Surcharges and Cesses so far as they relate to supply of goods and services

State taxes that are subsumed under the GST are:

• State VAT
• Central Sales Tax
• Luxury Tax
• Entry Tax (all forms)
• Entertainment and Amusement Tax (except when levied by the local bodies)
• Taxes on advertisements
• Purchase Tax
• Taxes on lotteries, betting and gambling
• State Surcharges and Cesses so far as they relate to supply of goods and services

 

Commodities Kept Outside GST

• The Products and Services Tax (GST) is defined by Article 366(12A) of the Constitution, as amended by the 101st Constitutional Amendment Act, 2016, as a tax on the supply of goods or services or both, except for the supply of alcoholic liquor for human consumption.
• As a result, alcohol for human use is exempt from GST under the constitution's definition of GST.
• The GST Council will determine the date on which they will be subject to GST.
• Furthermore, power is exempt from the GST.
• On imported items, customs duty and IGST will continue to be collected.
• Currently, petroleum and tobacco products are exempt.
• Liquor excise duty, stamp duty, and power taxes are all exempted as well.
• In the case of the aforementioned items, the present taxing structure (VAT and Central Excise) would be maintained.
• Petroleum crude, motor spirit (petrol), high-speed diesel, natural gas, and aviation turbine fuel have all been temporarily prohibited.

47th GST Council The GST council had its 47th meeting held at Chandigarh, chaired by the Finance Minister. The key decisions taken were: Online Retailers below 40 Lakhs are not required Goods and Services Tax registration for Intra-State Transactions. Council approved Report of GoM suggesting IT reforms GST Cess Collection will be used for Repayment of Loan till 2026. GoM was created for the establishment of the GST Tribunal, Decision on 1st August. GoM on Rate Rationalization Extended for Three More Months. No Decision on 28% Good and Service Tax on Casinos, Online Gaming: GST Council asks GoM to file a Report by 15th July. GST Council to meet on 1st August to decide Tax on Casinos. E-Way Bill for Intra-State movement of Gold to be decided by States. Rate Changes on Certain Items Approved will be implemented from 18th July. GST Council to meet on 1st August to decide on the Establishment of the GST Appellate Tribunal. GoM on IT Reforms: Permanent GoM to give Suggestions on GSTN Goods and Services Tax Compensation Cess for States shall continue.

 

Structure of GST

• The government has categorised items into five major slabs for different goods and services - 0%, 5%, 12%, 18% and 28%. Cesses may be imposed on the items under the highest slab of 28%.
• GST Council examines issues relating to goods, services tax and makes recommendations to the Union, and the States on parameters like rates, exemption list and threshold limits.
• necessities and food items are kept at the minimal rates of 0% and 5% and the luxury items and sin goods (such as tobacco, pan masala) are placed at the top bracket rate of 28%.
• Out of 1300 products and 500+ services, the majority of the products are placed in the 12% and 18% tax bracket.

 

Goods and Services Network (GSTN)

• GSTN is registered as a not-for-profit company under the Companies Act.
• It has been formed to set up and operate the information technology backbone of the GST.
• While the Central (24.5%) and the state (24.5%) governments hold a combined stake of 49%, the remaining 51% stake is divided among five financial institutions—LIC Housing Finance with 11% stake and ICICI Bank, HDFC, HDFC Bank and NSE Strategic Investment Corporation Ltd with 10% stake each.
• GSTN had awarded Infosys Ltd the contract to develop the hardware and software for GST.
• The idea behind GSTN was to set up an entity that is equidistant from both the Central government and the state governments, as it will advise both the Centre and the states on the information technology network.

 

National Anti-Profiteering Authority (NAA) The National Anti-Profiteering Authority shall be a five-member committee consisting of a Chairman who holds or has held a post equivalent in rank to a Secretary to the Government of India; and four Technical Members who are or have been Commissioners of State tax or central tax. Additional Director General of Safeguards shall be the Secretary of the Authority. The Authority will determine the method and procedure for determining whether the reduction in rate or the benefit of the input tax credit has been passed on by the seller to the buyer by reducing the prices. The Authority shall exist for 2 years from the date on which the Chairman enters upon his office unless the Council recommends otherwise. The GST Council will constitute a Standing Committee and a state-level Screening Committee on Anti-Profiteering, Standing Committee comprises officers of the State and Central Government as nominated by it.