‘Our effort is to bring amendment to GST law in Monsoon Session… to our mind, (28% tax on e-gaming) applies already’

Malhotra: This is an apprehension or this is a view. What the elasticity of demand, price elasticity of demand of online gaming is, needs to be seen. Because right now they are charging very less, they are collecting very less tax. So that is something to be seen. It will be premature to say anything as to whether it will kill the industry or whether there will be some impact or what impact it will have, that will have to be seen. But the [GST] Council was unanimous. All the states, without exception in so far as online gaming is concerned especially, were unanimous.

Q: Goa had suggested 18 per cent…

Malhotra: For online gaming, they did not have any issue for 28 per cent on face value. None of the states had, in fact, so far as online gaming is concerned.

Q: There are online gaming platforms operating from outside India. How will tax be collected if the entities are not present in India?

Malhotra: It is important that whatever taxation we have, it should follow the principle of equity. Whether we are able to tax it or not, of course, that is important… but more important is equity. So, if you look at it from an equity perspective, if these online games are for stakes, we have to distinguish between online games, per se, where there are no stakes involved. You play a game for fun, for entertainment, you pay some fees, you play a game and that is it. That is separate, that is taxed at 18 per cent.

It is only those games where you play for stakes that are already taxed and clarified to be taxed at 28 per cent. The equity comes in from the fact that if you treat these games, for stakes, as betting and gambling or in the nature of betting and gambling or lottery, these are taxed at 28 per cent. From that perspective, online gaming should have a rate of 28 per cent. Why should it have any other rate? Even if you were to consider them as entertainment only, then even some of the entertainment activities, for example, entry into a sporting event like IPL; or entry fees for entry into a casino, not for playing the game, just for entry; entry fees into a race course or casino are taxed at 28 per cent, which is only in the nature of entertainment, there is no betting involved. So from an equity perspective, this is what was weighing on the mind of the Council when they took this decision.

Your question as to whether and how we will tax it is a relevant question. But there are numerous ways that it can be done. It may not be a standard method. One is on payments, one can tax them.

The other is that if they do not pay those taxes, we can regulate them. We can prohibit them. They are not paying taxes which are due to us, then we can even regulate through MeitY [Ministry of Electronics and Information Technology]. So, we will explore these possibilities.

Q: Suppose some company is operating from Singapore and I pay from my bank account…

Malhotra: Ultimately, the payment will go abroad. When the payment goes abroad, then you have to declare a purpose as to why this payment is being made. And so at that time, we can tax it. Through the payment channels, we can ensure that we get the payment. Still, if it escapes, and we are not able to cover some channels, let us say, of some payments. For example, you may say credit cards (overseas spend) are today not under LRS [Liberalised Remittance Scheme]. If they still are not paying taxes, we can prohibit them. We will find out the means. I am saying these are the possibilities, I am not saying this is what will be done. There are various possibilities. And the mere fact that we cannot implement it should not come in the way of applying the correct tax rate.

Q: When you say payments, will tax be levied when the purpose is defined or will it be in the form of TCS?

Malhotra: Yes, TCS [Tax Collected at Source]. Whenever the payment is made by the banks, they will have to ask the purpose…and if you are declaring wrongly, then the onus is on you and penal consequences can follow.

Q: Banks will have to be part of it…

Malhotra: Banks will have to be brought into the picture (for TCS). The responsibility can be cast even on those online gaming companies to make payments. In case TCS has not been collected, then on those gaming companies located abroad.

Q: The way it was being done for travel operators?

Malhotra: Yes, so they collect it and give it to us. And if they fail to do so, they are transgressing the law. If they are transgressing the law, then we are well within our rights to regulate them or prohibit them or suspend them till the time they open an Indian account or make payments to us. They can operate from outside but they have to make payments to us. That requirement is still there.

Q: Any timeline to implement this?

Malhotra: This law is already there. It is only that the courts have interpreted it in a particular way, we are interpreting it in another way. So to clear this doubt, and to put an end to this debate on whether we can tax them, they are saying that these are actionable claims not in the nature of betting and gambling and lottery. Actionable claims not in the nature of betting, gambling and lottery are not taxable today as per the GST law. They are claiming that this is not in the nature of betting, gambling and lottery. We are saying that this is an actionable claim. Online gaming or horse racing played for stakes are actionable claims and are taxable along with betting, gambling and lottery.

Q: So as soon as the amendment comes in…

Malhotra: Our effort is to bring the amendment to the law in the Monsoon Session (of Parliament).

Q: So it applies retrospectively?

Malhotra: To our mind, it applies already. It is only a clarification. So, now there is no doubt about it. If there was any doubt, we are clarifying that doubt.

Q: Any timeline for the payment mechanism since an arrangement has to be made with banks or gaming companies?

Malhotra: That will take time. We will work on it.

Q: Will old court cases also get covered in it?

Malhotra: We would like that this explanation or clarification helps in bringing clarity to even the cases which are ongoing.

Q: What is the estimated size of the online gaming industry?

Malhotra: Rs 1,700 crore is the revenue that we got last year from online gaming in 2022-23, around Rs 300 crore from casinos in the two states and about Rs 80 crore from horse racing last year.

Q: That means the industry size if we take the average 10 per cent (gross gaming revenue/platform fee) on which they are paying 18 per cent…

Malhotra: The online gaming (industry) is paying only about 2 per cent, so you multiply it by 50. That becomes around Rs 85,000 crore (industry size).

Q: When you say they are paying only 2 per cent, what do you imply?

Malhotra: They are paying 18 per cent on GGR (gross gaming revenue). So, if the GGR is about 10 per cent… If it is 10 per cent (GGR) so I have taken around 2 per cent, multiplying it by 50, then it becomes 100 per cent. So, then it is in the range of Rs 50,000-85,000 crore. Half of Rs 85,000 crore would be around Rs 42,000 crore, if the GGR is 20 per cent, then it’s 3.6 per cent or nearly 4 per cent. So, it will be Rs 50,000-85,000 crore.

Q: That means a substantial loss of revenue for the moment.

Malhotra: If the same volumes continue, then, yes.

Q: It is almost 30 per cent (tax rate). So we could get Rs 15,000-20,000 crore more?

Malhotra: Yes, about 10 times what we are getting.

Q: On casinos, on the initial purchase of chips, one pays 28 per cent. In subsequent winnings of chips, suppose I get two more chips, how will the tax be levied?

Malhotra: That will be decided by the rules finally. Initially, whatever payments you make, those will be charged at the tax rate. If you buy chips of, let’s say, Rs 100, you pay Rs 128. You get chips worth Rs 100, you go play, you return some chips, the question is when you return whether the GST will be refunded or not. One thing is obvious that if you return more than Rs 100, you will not get more than that. This will be finalised in the rules. My sense is that you will get back only Rs 50, you will not get a refund. But this is to be decided and finalised in the rules.

Q: One of the items that has not come up in the agenda and you have denied earlier… some experts from the infrastructure sector are saying the GST rate on cement should be reduced.

Malhotra: Cement was not discussed and neither it is under process or under consideration, in the pipeline, or on the anvil, nothing of that sort.

Q: Did the LRS-TCS proposal get delayed because of the complexities of the tax structure?

Malhotra: Because we made some changes just before the deadline, that is why we had to give the banks more time to implement them.

Q: But in a way has the proposal for credit cards under LRS been put on the backburner?

Malhotra: Credit cards are not my domain, first of all. It is the Department of Economic Affairs secretary’s call as to how and when purchases on credit cards made abroad are to be brought under the LRS. I am not in a position to explain.

Q: How have the revenues grown in Q1?

Malhotra: About 12 per cent growth rate for gross GST and 16 per cent on direct taxes. In excise duty, there is a downward trend of 11 per cent but that is because rates were decreased in May last year. So that impact is there. There is also a decrease in customs (revenue) and that is primarily to do with sluggish exports because imports and exports go hand in hand.

Q: Was there a discussion on the revenue growth of states in the Council meeting?

Malhotra: Generally we present the report, the status of the (revenue) growth, but there was no discussion on it. It was presented, it was noted.

Q: Which are the states lagging behind 14 per cent growth rate?

Malhotra: I would like to first of all mention and I have been trying to say this, this 14 per cent is not the yardstick with which we should actually be comparing. Because this figure does not have any rationale or any basis, the revenues of the states were also not growing at this rate prior to the introduction of GST. In fact, revenues were growing at only about 8 per cent, so now the revenues are growing at 12 per cent.

Q: 12 per cent since the GST rollout?

Malhotra: Since the rollout of the GST, the growth rate is 12.3 per cent in five years, whereas the economy has grown at only 9.8 per cent. So we have done better.

Q: And what has been the revenue growth after the compensation payouts to states stopped in June last year?

Malhotra: If you don’t take into account the compensation, then the buoyancy is 1.15, so then it will be about 11.3 per cent since 2018-19 instead of 12.3 per cent.

Q: Is there a concern that consumption states are gaining at the cost of producing states? Is that showing up in revenue numbers?

Malhotra: I have not checked but obviously it should show up because it is a destination-, consumption-based tax. So it should show up.

Q: If there is some kind of disparity, is there some kind of consideration to support the states which are lagging for some kind of redistribution?

Malhotra: That would not be my concern. Our concern here is to raise revenues from GST as per the law. That is for the Finance Commission to see how they redistribute it.