Tax collections from 28% GST on online gaming may yield 20,000 cr in FY23-24, says Revenue Secretary

Revenue Secretary Sanjay Malhotra dismissed the online gaming industry’s concerns about income declines as “apprehension,” saying the government expects a boost in tax collection from the sector of up to Rs 20,000 crore in FY23-24 if growth rates remain constant.

“We collected about Rs 1,700 crore from online gaming in FY22-23. If the industry continues to grow at the same rate, then we should clock around Rs 15,000-20,000 crore,” Malhotra told Money Control.

On July 11, the GST council announced that it was going to levy 28 percent tax on the face value of the game, or the payment made to the platform by users. The effective date for the levy will be made known after amendments to the GST law, said Finance Minister Nirmala Sitharaman after the council meeting.

The GST Council has unanimously decided to impose 28 per cent tax on online gaming, casino and horse racing etc, he said adding that the government will pursue all cases in the Supreme Court for recovery of erstwhile tax demands.

He said the online gaming industry is currently paying only 2-3 per cent GST which is even less than 5 per cent tax applicable on food items consumed by a common man.

“One of the members, in fact, in the GST Council pointed out that the way the online gaming companies are paying the taxes on online games at 18 per cent of GGR, which works out to only about 2-3 per cent, even lower than the tax rate of 5 per cent levied on many of the food products consumed by the very common people,” Malhotra told PTI in an interview.

The exchequer last year (FY2022-23) collected only Rs 1,700 crore GST which could have been Rs 15,000-20,000 crore had the tax been levied on the full value.

“But this (tax by online gaming companies) is on a much lower rate which the online gaming companies are paying. Our estimate is that it should be at least about 8 to 10 times this amount. So, if that is true, it should be about Rs 15,000 to 20,000 crore annually, provided the volumes also sustain,” he said.

These companies took refuge under the differentiation of game of skill and chance and paid 18 per cent GST on only platform fees or Gross Gaming Revenue (GGR).

The council earlier this week clarified that GST should be paid at 28 per cent on the full face value of bets.

He further said that wherever there is tax avoidance or evasion those aspects will certainly be looked into and those taxes will be recovered, he asserted.

“As you may be aware we are also going to challenge the decision of the High Court in the Supreme Court. So, our decision to collect taxes at higher rates will of course also depend on the outcome of the judgement in the Supreme Court. Unless and until we have a judgement in our favour, we will not be in a position to recover the taxes at the higher rates,” he said.

On the possibility of review following concerns expressed by the online gaming industry, Malhotra said, “The council was very unanimous. It has taken this decision after due deliberation. It has taken this decision after consultations with the industry. There was long consultation as you are aware that this decision has been pending for the last two to three years.”

Whether this decision will be reviewed, he said, “The decision has just been taken. I really do not think. Of course, it is for the council to decide. I really doubt (it) because this decision has been unanimous and the decision has been taken as I mentioned after due consultation and deliberation. So, I don’t think there is any chance of a review as early as this.”

On whether the high tax rate would prompt undesirable entities to operate from offshore, Malhotra said it would be a challenge but there are means available with the government.

For example, he said, “We can have regulations on payments and introduce provisions like TCS.”

The government can even ban some of the gaming sites as was done in the past, he said, adding, “They can even be regulated or prohibited. It would be our endeavour that if there is any illegal mushrooming of such online games, then we will make all efforts to curb them.