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Karnataka Govt To Discuss Draft Ordinance For Implementation Of 28% GST On Online Gaming: Report

The State government’s move comes after the GST Council, headed by Finance Minister Nirmala Sitharaman, announced that amendments to the CGST Rules, 2017 will come into effect from October 1.

The Karnataka government is planning to implement 28% GST on real-money gaming through a draft ordinance, which is to be discussed by the state cabinet today, according to a report by Moneycontrol. The State government’s move comes after the GST Council, headed by Finance Minister Nirmala Sitharaman, announced that amendments to the CGST Rules, 2017 will come into effect from October 1. The Council also asked the States to amend their GST laws by the said date.

The Finance Minister had also stated that the council will review the decision six months after the amendments are implemented. “Six months of implementation will hopefully give us some input and also we can share our experiences to see what’s going on. There can be a state which is going to come up with an amendment [to their GST law following the announcement] a little later. If it is implemented by October 1st, then six months from then, the Council will review the position,” Sitharaman added.

Speaking to Moneycontrol, the State Information Technology and Bio-Technology Minister Priyank Kharge said that he was unaware of the move to introduce a draft ordinance before the cabinet. Kharge had previously expressed discontent over the Central government’s decision to impose a 28% levy on online real-money skill gaming and was of the view that it was important to make a distinction between games of skill and games of chance under the GST regime.

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Conflicting the Karnataka High Court’s verdict: Revenue Secretary Sanjay Malhotra informed in the last GST Council meet that the government has appealed the Supreme Court against Karnataka High Court’s verdict striking down a tax evasion notice issued to Gameskraft, a Bengaluru-based gaming giant. While the GST authorities alleged that the online real money skill gaming company was indulging in online gambling activities by hosting online rummy, Gameskraft argued that it has been held by courts that rummy is a game of skill, irrespective of whether its played online or offline. The High Court’s verdict favoured Gameskraft’s position emphasizing on making the distinction between real-money skill games and gambling. The court also held that taxation of skill games is outside the scope of the term “supply” in view of the CGST Act when read with Schedule III of the Act. The GST Council’s decision to levy 28% GST on online skill gaming came after the Karnataka High Court’s judgment.

Why are industry players upset?

Industry players are particularly against the government’s failure to distinguish between real-money skill games and chance-based games, while imposing tax on the value earned through online gaming. The All India Gaming Federation has argued that multiple court verdicts have clarified that games of skill are different from games of chance and are held to be “legitimate non-gambling games”.

“The decision ignores over 60 years of settled legal jurisprudence and lumps online skill gaming with gambling activities. This decision will wipe out the entire Indian gaming industry and lead to lakhs of job losses and the only people benefitting from this will be anti-national illegal offshore platforms,” AIGF stated.

Similarly, E-Gaming Federation added that the move will render the online gaming industry unviable, impact revenues, hurt employment opportunities, and will also boost black market operations. “Furthermore, online gaming is different from gambling, and the Supreme Court and various High Court decisions have reaffirmed the status of online skill-based games as legitimate business activity protected as a fundamental right under the Indian constitution,” the federation observed.

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