Online Gaming Industry Seeks Relief as Stakeholders Await GST Council Review

The online gaming industry is closely monitoring today’s 54th Goods and Services Tax (GST) Council meeting, anticipating a review of the 28 percent GST imposed on deposits. The sector has been struggling with high taxation, which stakeholders claim has contributed to the rise of grey market operators. Ashish Philip, a partner at Lakshmikumaran and Sridharan, emphasized the industry's hope for clearer guidance. "On the implementation of 28 per cent GST on deposits for online gaming, it was promised to review the impact on stakeholders after six months of implementation. The industry expects the 54th GST Council meeting to review the impact of high rates of taxation levied on the sector and the growing trends of grey market players."

Although the issue is currently under review by the Supreme Court, the gaming industry hopes the GST Council will offer guidance on the newly introduced Section 11A, which pertains to show-cause notices for past periods. "Additionally, the industry players are also looking forward to some clarifications on issues such as valuation and the treatment of discounts, promotions, and incentives under the new deposit-based regime," added Philip, reflecting the concerns shared by stakeholders.

Smita Singh, partner at S&A Law Offices, emphasised the industry's appeal to shift the tax calculation to gross gaming revenue rather than the full transaction value. She noted, "Clarity on the retrospective levy of GST on online gaming will provide a lot of certainty to online gaming companies, many of whom have been served show-cause notices demanding GST of thousands of crores, particularly the startups."

Despite these demands, the government seems reluctant to make immediate changes. "Due to the current scenario and the revenue involved, this issue may, in all likelihood, take a backseat for some time," added Singh.

Strict GST rates continue to pose challenges for the online gaming sector

The GST Council's position on taxing online gaming has given rise to substantial debate, as the sector faces a steep 28 percent GST rate on overall transaction values, including entry fees and stakes. Critics contend that this stringent tax rate is hindering growth and discouraging investment, especially for startups and smaller gaming companies.

"The online gaming industry is subjected to one of the highest GST rates in India, reflecting a stringent approach by policymakers," said Smita Singh.

"While the high rate is intended to maximize tax revenue, it has potentially hindered growth and investment in this sector and impacted profit margins for gaming companies, potentially affecting their overall financial health," she added.

The insurance industry is advocating for GST relief on premiums

The GST Council has been receiving requests from insurance companies for relief on the tax structure for premiums, particularly regarding health and life insurance policies. The insurance sector, supported by consumer advocacy groups, is demanding a reduction in the 18 percent GST rate, which they believe is making policies less affordable for the average consumer.

"The demand from insurance companies for a reduction in GST rates on insurance policies reflects broader concerns about the financial burden of high taxation and its impact on the industry and consumers," said industry experts.

"An 18 per cent GST rate makes insurance products more expensive and less accessible to the average consumer, which can deter individuals from purchasing new policies and may even lead to existing policyholders choosing not to renew their coverage," they added.