Highly Disputed 28% GST Levy Sees India Collect Staggering $1.7bln in FY25

India expects to gather around 140 billion rupees ($1.7 billion) in goods and services tax (GST) in the upcoming financial year through the unpopular taxation of online gambling firms. In a recent interview, Revenue Secretary Sanjay Malhotra revealed that the government aims to collect approximately 75 billion rupees from this levy in the fiscal year ending on March 31, marking a significant surge from the preceding year's 16 billion rupees.

Back in October of last year, the government imposed this controversial goods and services tax (GST) on funds collected from customers’ bets. Irrespective of whether the money is derived from win real money with no deposit bonuses or any other casino-related promotion, said funds will be heavily levied. The motivation behind this decision, which will significantly impact the $1.5 billion industry, arose from concerns about addiction.

Malhotra revealed that while the industry has stabilized, it's premature to draw definitive conclusions. He also mentioned that a review of the framework for taxing online gambling companies will be conducted by April, but emphasized that this does not necessarily imply changes in tax rates.

Current Gambling Landscape

The rise of internet connectivity and smartphone penetration has fueled the growth of online gambling in India, encompassing casino games, sports betting, fantasy sports, and online lotteries. Mobile casinos have emerged as a significant trend, liberating players from the constraints of traditional casinos and delivering the excitement directly to their fingertips. These platforms offer a diverse array of classic card games, captivating slot machines, and immersive live dealer interactions, catering to the preferences of every gaming enthusiast.

However, the legal status of online gambling remains ambiguous, with no specific laws directly addressing it. Many offshore gambling websites accept Indian players, raising concerns about regulation, taxation, and consumer protection. Consequently, the government has undertaken concerted efforts to crack down on this, prohibiting 581 applications, including 174 betting and gambling apps late last year.

Among the notable websites banned for operating unlawfully in India are Lotus365, Fairplay, 1XBET, Parimatch, Betwaysatta, and Dafabet. Several of these platforms are currently under investigation by the Enforcement Directorate (ED). The most recent bans were also carried out in compliance with an order from the ED. The government had previously banned 138 unauthorized betting and gaming websites, last year. However, despite the ban, some of these websites remained active.

Legal Framework

The primary legislation governing gaming and gambling activities is the Public Gambling Act, which holds a crucial role in regulation. This law delineates permissible activities and notably carves out a significant exception for games of skill. Activities that predominantly involve skill rather than chance are deemed lawful under this federal statute. This acknowledgment has led to games such as rummy and fantasy cricket being recognized as games of skill. However, it's essential to acknowledge that besides federal law, individual states in India have their own regulations overseeing gaming activities. While certain states, like Tamil Nadu, have enforced complete prohibitions on gaming, others, particularly in the northeastern region, have instituted licensing frameworks to authorize and oversee online gaming.

GST Changes

A significant development in the online gaming industry has been the recent uptick in the Goods and Services Tax (GST) imposed on the sector. The GST rate has surged from 18% to 28%, aligning online gaming with 'sin taxes' like those imposed on horse racing. Of particular concern is that GST is now levied on the total face value of bets placed, rather than solely on the operator's commission. This tax hike carries substantial implications for the industry, resulting in operational downsizing, job cuts, and potentially dampened foreign direct investment. Basu also underscored the uncertainty surrounding the retrospective application of this tax, which has been subject to legal dispute, exacerbating the sector's challenges. However, it's important to note that the 28% GST applies solely to the player's initial deposit, not to subsequent plays utilizing the same deposit. While this clarification addresses one aspect, it doesn't resolve the fundamental issues regarding the elevated tax rate and its application to the face value of bets.

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