Controversial Amendments to GST Law Impact Online Gaming Industry
The online gaming industry in India is facing turmoil due to controversial amendments to the Goods and Services Tax (GST) law. These amendments have raised questions about retroactive taxation and have significant consequences for the industry. The amendments introduce the terms Online Gaming and Online Money Gaming into the GST framework and extensively amend the definition of supplier under the GST law.
The amendment in the definition of ‘supplier’ has far-reaching implications since GST is a tax on the ‘supply’ of goods and services, and the fundamental definition of supply itself has been changed. The issue of concern lies in the fact that these amendments, although bringing substantial changes to the GST law, are claimed to be ‘merely clarificatory’ in nature. This paves the way for their retrospective application, as clarificatory or explanatory amendments can only be applied retrospectively.
To understand the implications and legal questions surrounding these amendments, it is crucial to examine the background and context in which they have been introduced. Every Indian citizen has the constitutionally protected right to earn through their skills, subject to reasonable restrictions by the state. The Supreme Court has established a boundary between ‘games of skill’ and ‘games of chance’ to determine what can be allowed or prohibited by the state.
While ‘games of chance’ (interpreted as ‘betting and gambling’) can be subject to restrictions or allowed under license conditions, games of skill are protected under the fundamental right of trade/profession. This constitutional protection has led to the development of online gaming platforms in India that facilitate established games of skill. These platforms earn revenue through ‘platform fees’ for their services of facilitating games of skill.
Previously, GST was levied at a rate of 18% on the platform fees earned by online gaming platforms. However, under the new amendment, there is a potential attempt to retrospectively collect GST at a rate of 28% on the entire amount wagered, rather than just the platform fees. This could create a significant financial burden for platforms, as they would be asked to pay GST on an amount much larger than their actual revenue.
The GST authorities argue that online gaming companies are not providing facilitation services to players but supplying ‘actionable claims in the nature of chance to win in betting and gambling’. However, the Karnataka High Court recently quashed a notice issued by the GST authorities to an online gaming company demanding a substantial amount in GST. The court reiterated that ‘games of skill’, even when played with money stakes, cannot be taxed in the same manner as gambling.
Contrary to the Karnataka High Court’s ruling, the recent amendments to the CGST Act seem to blur the distinction between ‘games of skill’ and ‘games of chance’. They treat all online gaming platforms as if they were betting houses or casinos, disregarding 60 years of established legal precedents.
The amendments introduce a ‘deeming fiction’ in the definition of supplier to overcome the factual rebuttal by gaming companies, deeming them as suppliers of ‘actionable claims’ in the nature of chance to win. This significantly enhances the concept of supplier under the GST laws and widens the taxable base for online gaming companies. It is a drastic deviation from established jurisprudence and raises questions about the legality of such amendments.
One puzzling aspect is the lack of explicit mention of retrospective applicability in the language of these amendments. However, they are being considered ‘merely clarificatory’ and therefore applicable even for the past period. This attempt at retrospective application is legally questionable, as the Supreme Court has clarified that amendments can only be considered ‘merely clarificatory’ under specific circumstances. The recent GST amendments, being substantive in nature, do not qualify as clarificatory amendments.
Retrospective application of these amendments could have negative consequences for investor sentiments towards India, similar to the controversial retrospective amendment that overturned the Vodafone judgement. Therefore, it is doubtful whether the retrospective application of these amendments is legally justified.
In conclusion, the controversial amendments to the GST law have shaken the online gaming industry in India. The new amendments blur the line between ‘games of skill’ and ‘games of chance’, treat all online gaming platforms as betting houses, and raise questions about the legal tenability of such changes. Additionally, the attempt to apply these amendments retrospectively is problematic and could have negative implications. The industry awaits further clarity and resolution on these matters.
