The Revenue Department has announced its intention to file an appeal in the Supreme Court against the Karnataka High Court's ruling in May that quashed a Rs 21,000-crore Goods and Services Tax (GST) demand made against Gameskraft, an online gaming company. Revenue Secretary Sanjay Malhotra revealed the department's plan to file a Special Leave Petition (SLP) while also stating that the Goods and Services Tax Council will introduce a clarificatory amendment, emphasizing that wagering on online games is taxable at a higher rate.
During the 50th meeting of the GST Council held on July 11, it was decided that a 28% GST rate would be imposed on online gaming, horse racing, and casinos based on the full face value. However, this decision has disappointed the industry, which was hoping for an 18% rate specifically for the platform fee. Concerns have been raised that the higher tax rate on the full value could drive many companies to relocate abroad.
Responding to industry concerns, Revenue Secretary Sanjay Malhotra defended the decision of the GST Council, stating that the higher rate for online games played with stakes is justified from both social and economic perspectives. He clarified that online gaming without wagering would be taxed at 18%, but when played with stakes, it would be subject to the higher 28% tax rate on the total face value. He further emphasized that investments and employment in the sector should align with the needs of society and the overall economy.
Regarding the retrospective or prospective nature of the tax, Malhotra explained that the current law already stipulates a 28% tax rate on the full face value, and the amendment would merely serve to explicitly clarify this provision. While the amendment will be prospective, it is meant to remove any ambiguity and confirm that online games involving wagering fall under the purview of GST.
The decision of the GST Council has triggered a significant backlash from online gaming companies. However, the Revenue Department maintains that the 28% tax rate on the full face value has always been in effect and that the department will challenge the Karnataka High Court's decision. The online gaming industry's revenue from GST amounted to around Rs 1,700 crore in the last fiscal year. If the Revenue Department succeeds in its appeal, this number could potentially increase significantly.
The Karnataka High Court ruling in May pertained to Gameskraft Technologies Private Limited, which received a GST notice of Rs 21,000 crore. The court quashed the notice, ruling that primarily skill-based online games are not taxable under the 28% GST slab. Gameskraft Technologies had moved the court after receiving the notice, which alleged non-payment of GST on betting amounts, covering the period from 2017 to June 2022. The authorities had levied a 28% tax on the betting amount, resulting in a total demand of Rs 21,000 crore.
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