Amended norms for 28% GST on e-gaming kick in; companies raise concerns

Government officials, however, emphasised that all states are on board for the amended rules and provisions even though some states may face delay in passing their amendments/ordinances. “A few states may be late but all states are on board. Some have amended and others are in process. But all states are on board,” a top government official told The Indian Express.

The official further said that gaming companies are mainly located in Bengaluru, Karnataka and Mumbai, Maharashtra and both states have already passed the amendments for casinos, online gaming and horse racing. States like Goa, Madhya Pradesh, Maharashtra had earlier cleared the amendment , while Karnataka promulgated the ordinance on Friday.

The GST Council is slated to meet next on October 7, wherein an update is expected to be taken on the rollout of the online gaming provisions across states.

Industry and tax experts said compliance will be a huge burden for online gaming companies. With the recent spate of notices to these companies, the change to the revised regime is already building apprehensions of further such legal notices from the GST authorities in the future.

“…this may open floodgates of unilateral actions in future by various states in various other aspects of GST thereby tearing apart the fabric of GST so carefully stitched together through a painstakingly built consensus between Center and the States,” the AIGF, which represents companies like MPL, WinZO and Zupee, said in its letter.

“With around 15 States yet to make changes to their respective State GST laws, what would be the GST treatment that ought to be adopted by online gaming companies registered in those States in relation to deposits received from players of those States,” the AIGF said.

Since the amendments to the SGST laws are yet to be passed, the online gaming companies cannot charge SGST and can only charge CGST, they added. “Going forward, will the online gaming companies be penalised for not being able to charge the appropriate GST,” they added.

The top government official cited above stated that both CGST and IGST have become applicable. “Only if both the company and the user are located in states which have not passed the amendment, it will not be applicable,” the official said.

A senior gaming company executive said that the Centre’s notification “appears to be a move to push the States to pass their respective amendments at the earliest and till that happens, there will clearly be an anomaly”.

“To illustrate – Haryana has issued an ordinance to amend its SGST law but Delhi has not. Operators with registration in Delhi will not be liable to SGST but will be liable to CGST for deposits from customers located in Delhi. However, IGST will be applicable for all deposits from customers located outside Delhi. Whereas operators in Haryana will have to charge full tax rate for all customer deposits irrespective of whether the customer is within or outside Haryana,” they said, requesting anonymity.

The AIGF, while requesting the government to suspend the amendments until all states make their respective legal changes, said that for their members to align their business practices with the framework will require back-end modifications and alignment so that appropriate GST is charged.

“In a scenario where there is complete confusion, it will be a massive challenge for the online gaming companies to operationally adapt to these large-scale changes when there is no uniformity in the statutory framework,” they said in the letter.

Tax experts said the non-uniform rollout of the provisions for online gaming leaves space for ambiguity for classification of supplies made among others. Abhishek Jain, Indirect Tax Head & Partner, KPMG said, “While most provisions for the revised taxability have been notified, ambiguity on certain matters continue including classification of the supplies made, time of supply, transition provisions, etc.”

Companies will need to work on their compliance requirements, experts said. “Once registered, companies will need to align their accounting systems to comply with the new requirements. They will also need to create a data repository to store customer information and other data required for undertaking GST compliances in India for a specified period of time. It is important for online money gaming companies to comply with the new GST regulations in order to avoid any penalties in the future,” Saurabh Agarwal, Tax Partner, EY said.

Experts also said that there’s a possibility that some companies may move their operations to a state where the amended GST law is not yet in force. “In the event that some States pass their legislations to tax online gaming (whereas certain others have not) and, the central enactment provisions are also notified, there is a possibility that the companies (platforms offering online gaming facilities) move their operations/ base to such other jurisdiction or state where the amended GST law is not in force. This will dent the one nation, one market, one tax concept. In that way, States may compete amongst themselves,” Ranjeet Mahtani, Partner, Dhruva Advisors said.