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Ahead of the festive season in the country, Empower India, a think tank, has suggested deferring the introduction of the Invoice Management System (IMS), likely to be launched on 1 October 2024.

The primary objective of the IMS is to streamline the input tax credit (ITC) claim process. However, according to Empower India, the lack of preparation will not only increase the compliance burden but also impede the efficient deployment of the capital.

Under the new system, the recipient taxpayer will be required to accept or reject every invoice or credit note or keep it pending instead of the current system where businesses can simply claim ITC on their own.

The think tank added that the lack of legal backing for the IMS, proposal is a key concern as taxpayers are currently doing self-assessments and claiming ITC in their GST returns.

The Goods and Services Tax Network (GSTN) has proposed to launch the IMS on 1 October 2024.

K Giri Director General, Empower India said, "It is prudent to defer the introduction of the IMS as it could impact the retail ecosystem during the festive season when they conclude 30-35% of their yearly sales. Also for the retail ecosystem, a new guideline to be followed in the middle of a busy sales period is an unwarranted distraction. The lack of a functional supplier dashboard, which would provide visibility on recipient actions, further complicates the implementation".

As per Empower India's suggestions, consultations with small businesses and with the last retailer are paramount. The think tank mentioned some of the suggestions by taxpayers such as allowing credit notes to be kept pending, providing sufficient time for alignment before automatic addition of tax liability, and enabling suppliers to issue debit notes to offset rejected credit notes.

"The current proposal lacks a clear mechanism for suppliers to dispute any incorrect or mischievous rejection of credit notes by their customers," Empower India added.

The think tank said that companies are already handling major GST change by way of Input Service distribution becoming mandatory from the next fiscal year, and the unannounced change complicates the compliance process.

"Business should be allowed at least 12 months to prepare for the implementation of IMS," Empower India said.

IMS rollout could curtail festive sales opportunity for retailers: Empower India

The Rs 60,000 crore Indian non-alcoholic beverage sector, represented by companies such as PepsiCo, Coca-Cola, Bisleri, Tata Group, and Campa (Reliance Industries Ltd), has formally appealed to the government for urgent tax reform, according to reports by CNBC-TV18. 

In letters to the Finance Ministry, the GST Council, and a GST-Council-nominated Group of Ministers (GoM) on rate rationalisation, the industry has outlined the detrimental effects of high GST rates on the sector.

In an exclusive interview with CNBC-TV18, CK Jaipuria, Chairman of the Indian Beverage Association (IBA), emphasized the need for immediate action. He labelled the existing tax structure as "retrograde" and noted that the high rates place a significant burden on the rapidly growing industry, which is expanding at a rate of 14% annually.

The industry has proposed lowering the GST on essential items like bottled water, currently taxed at 18% and 12%, to 5%. "Water is a necessity," Jaipuria remarked, adding that the government itself procured bottled water for disaster relief efforts, underscoring its importance. "A reduction in tax would allow us to pass on the benefits to consumers."

Jaipuria also called for a GST reduction on fruit juices, currently taxed at 12%, to 5%, in line with food items. He recalled the Prime Minister's earlier push for the beverage industry to increase its procurement of fruits to support farmers, stating that the sector has yet to see the promised tax relief despite increasing fruit content in beverages.

For carbonated drinks, which are taxed at 28% with an additional 12% cess, the industry has requested a reclassification. "Carbonated drinks should not be treated as sin goods like alcohol and tobacco," Jaipuria argued. He urged the government to reduce the overall tax burden on these products to 18%.

The GoM meeting, scheduled for today in Goa, may address these proposals, but the outcome remains uncertain.

Indian beverage industry urges GST rate cut to boost sector growth

The Directorate General of GST Intelligence has suggested that there is a need for an arrangement with foreign governments to tackle tax evasion in Online Information and Database Access or Retrieval (OIDAR) services like online gaming. Such arrangement with foreign government will also help blocking websites of notorious illegal gambling and betting websites. 

Recently, the Directorate General of GST Intelligence (DGGI) has detected 6,084 cases of tax evasion totaling Rs 2.01 lakh crore in the financial year 2023-24. According to its annual report, real-money online gaming companies are the largest tax evaders, responsible for Rs 82,000 crore, which constitutes 41% of the total Rs 2 lakh crore evasion uncovered this year.

The DGGI Annual Report states that actions have been taken against 118 domestic online gaming companies, with Show Cause Notices issued to 34 taxpayers, involving tax amounts of Rs 1,10,531.91 crore. The GST department is investigating 658 offshore online gambling companies. 

OIDAR services includes a wide array of services viz cloud services, digital content, online gaming, online advertising etc. When such services are provided by an offshore entity to a non-taxable recipient, the supplier becomes liable for obtaining registration and discharging GST on the same.

Currently, as many as 574 offshore entities providing OIDAR Services have registered themselves with the GST department, and annual revenue from this sector has increased from Rs 80 crore for the FY 2017-18 to Rs 2,675 crore for 2023-24 fiscal.

The Directorate General of GST Intelligence (DGGI) in its annual report noted that since the OIDAR service providers are located abroad it becomes a challenge in GST enforcement and hence the sector remains relatively untapped and holds tremendous revenue potential.

On dealing with such offshore suppliers, it has also dawned that several such suppliers are ignorant of the law, and upon conveying the legal position clearly, such suppliers agree to comply with the GST mandate, it said.
These include the likes of Udemy Inc (USA), Canva Pty (Australia), OVH group (France), Blackboard (Netherlands) etc who registered themselves following efforts of DGGI and discharged significant tax liability.

"However, there are other entities that are non-cooperative and appear to intentionally avoid tax compliance. These include various online casinos based out of tax-havens like Malta, Cypress, Curacao, BVI etc. There are also other entities that are difficult to reach out to on account of them operating through VPN or cloud-based platforms," the DGGI said.

The GST intelligence wing said that unique challenges in tax enforcement in this sector necessitate out-of-the-box interventions to plug revenue leakage.

The DGGI suggested steps like registering with the KODEX platform to receive the data/information in respect of offshore suppliers, as well as coordination with the Reserve Bank of India to obtain relevant data pertaining to forex transactions. 


DGGI will shake hands with foreign govts to crack whip on offshore gambling firms

Its been a little over six months after the government implemented a 28 percent Goods and Services Tax (GST) on online gaming bets and the industry is grappling with its impact with no hope of recovering from the slump.  Companies are now bracing for a potential revenue drop exceeding 50 percent and some profit making firms have even slipped back into losses. 

"We were on a growth path in 2024 but now are running on losses," said a gaming company founder who did not want to be named. 

“With the new GST regime our monthly tax outlay has increased 4X. With 60 percent- 70 percent 70 of revenue going towards GST, there's barely any margin left for operations. Everyone is absorbing the tax to avoid losing customers so we are following the same route. We were hoping for discussions in March, but it's now delayed until the first GST meeting after the new government formation,” they added.


The 28 percent GST, implemented in October 2023, is levied on the full value of online gaming bets, not the net winnings (the difference between what's wagered and what's won).


Simply put, players are expected to pay a 28 percent GST on the total amount they deposit, which increases the cost of playing. For instance, if a player wagers Rs 100, they'd effectively have Rs 28 less to play with due to GST, on top of any platform fees. This naturally reduces potential winnings.


Adding to the burden, there's also a 30 percent TDS (tax deducted at source) applied to winnings, leaving players with a significantly smaller portion of their wins.


As per Lumikai’s October 2023 report, around 60 percent users have said that new GST and TDS rules would negatively impact how much they play.


To avoid this situation, many online gaming companies are currently absorbing some or all of the GST burden.


This has resulted in closing down of smaller continues and those who continue to operate have implemented massive cost cuts across board.


“Marketing expenses have been slashed by more than half,” another gaming company founder revealed on conditions of anonymity.


“The downsides of these measures will soon start showing. Brands can’t survive without any marketing and advertising costs. On The other hand, offshore companies advertising no GST or TDS are making things worse. We have no resources to counter their marketing blitz,” they added.


Funding has also dried up. 

As per the  Lumikai’s report, funding in the Indian gaming sector is down 75 percent y-o-y in 2023, mirroring the global funding decrease of 79 percent y-o-y.


“There's no capital in the market, and companies can't sustain losses forever, Cost-cutting is rampant, from marketing to office space, even toilet paper and unfortunately the next GST council meeting in June might not bring relief either,” they added.



Reports indicate a significant rise in GST collections from online gaming since October, jumping from Rs 225 crore monthly approximately Rs 1,200 crore. 


This windfall for the government may come at the cost of the industry's survival.  “Several companies might exit the market,” warned another industry representative. 


“New ventures are unlikely, and the sector can't survive with just a handful of players. Offshore companies will be the sole beneficiaries. There's a lack of empathy for the industry, and no assurances of a turnaround. We might have to move on if this continues,” said the chief marketing officer of a multi game platform.

Experts propose a revised GST structure.

"In crafting a balanced policy framework, we must navigate the intricacies of taxation with a keen eye on societal impact. 

For acknowledging the vital role of skill-based games in fostering digital inclusion and education, setting the GST rate at 18 percent  is a fitting choice. The increase to 28 percent (implemented in October 2023) should be applied prospectively, not retrospectively, ensuring fairness and practicality,” said Dr Aruna Sharma, Policy Advisor, Practitioner Development Economist, and Former Secretary to the GoI.


“Also, it's crucial that GST applies solely to platform fees, avoiding imposition on intangible assets that can’t be considered under goods or services, such as money on the table. In fact, iGaming platforms should segregate this money into an escrow account, reserved solely for winner payouts after TDS deductions,” she added.

Furthermore, establishing clear parameters to differentiate skill from chance games is imperative for effective regulation. According to Sharma, the same should be expedited.

“Let’s advocate for policies that mitigate adverse effects and, at the same time, foster innovation and social empowerment,” she said. 



Online gaming industry faces potential 50 percent revenue drop after 6 months of 28 percent GST implementation

Equating gaming with luxury goods and clubbing it with ‘sin goods’ in the highest slab of the goods and services tax (GST) regime of 28 percent may have been a curse for many but has, surprisingly, also become a boon with regulatory measures curbing the illicit operations of offshore betting firms with little accountability. The closure of platforms such as Betway and Bet365 indicate a potential decline in offshore betting activities within the country.

Beltway, the Malta-based online gambling platform offering sportsbook and online casino services, recently announced the end of its operations in India. Attempts to download the platform now display a message stating, "We regretfully have elected to cease trading in your region. We will work with you to return any outstanding balances."

Betway and similar platforms had been operating openly in India, enticing customers with catchy slogans and graphics. They sought to establish legitimacy by featuring endorsements by well-known sports and entertainment figures such as TV personality Rannvijay Singha for Betway, Hindi actor Ranbir Kapoor and Hindi, Haryanvi and Punjabi rapper Badshah for Fairplay, Bollywood’s Nora Fatehi for Sportsexch and many others. Most recently Betway was even seen advertising on popular television channels during the Ashes 2023 England-Australia cricket tournament.

How is the introduction of the 28 percent GST helping?

“In order to bring offshore gaming companies on a par with the domestic online gaming companies, the government has introduced a tax of 28 percent on the total funds collected by online gaming companies from users/gamers and not on each and every bet, i.e., the full bet value. One of the other major another idea behind the introduction of the new raised tax on the full bet value on all online gaming companies is to bring under the purview the rampant suspected money-laundering schemes illegally run by offshore online gaming companies,” said Shivani Bhushan, senior associate at boutique law firm TAS Law.

The resultant effect of this is that all offshore online gaming companies operating in India will have to mandatorily be registered locally or will have to appoint a representative to pay the taxes collected on the full bet values. If they fail to comply, such gaming companies will be blocked from providing their services in the country.

Experts foresee the offshore online gaming business decreasing in India as they will now lose the tax arbitrage they enjoyed, and also due to increased competitions from domestic online gaming service providers.

“This imposition of (the new) tax regime is also keeping in mind the severe risk imposed to the financial security, privacy and wellbeing of citizens, as Indian online gamers were/are at risk of being exposed to nefarious and unscrupulous platforms that are not under the scrutiny of the Indian government,” Bhushan explained.

The anomalies

However, the All India Gaming Federation highlighted that there are several states where the amendments have not been incorporated in their respective GST laws and hence the notification may stand suspended till such time all states have carried out the amendment.

Some platforms are using their rivals’ closure to promote their own offerings. Fun88, for instance, is circulating promotional messages announcing the closing of Betway and calling themselves “the only legitimate global brand in India”, while offering a 300 percent welcome bonus. 

 

What were the loopholes these platforms were using to operate in India?

Disguised as content platforms, offshore betting companies had been a significant presence in India for quite some time. Their advertisements often feature QR codes that once scanned redirect users to WhatsApp business accounts. These accounts provided access to websites, complete with usernames and passwords, allowing individuals to place bets.

“Offshore betting platforms exploit various loopholes to operate in India, operating from lax regulatory jurisdictions and obtaining foreign licences. The digital nature of their operations, along with the unclear gambling laws in India, aided their cause. Evading taxes and adhering to FEMA (the Foreign Exchange Management Act) rules, they manage to function in a legal grey area. Tactics like domain shifting post-ban, and collaborations with local entities further facilitate their operations,” said Aviral Kapoor, partner at Alagh & Kapoor Law Offices.

What will the platforms do now?

“In the light of recent regulatory updates, offshore gaming platforms operating in India are now under stringent compliance scrutiny,” Kapoor added.

The government has mandated these entities to officially register within the country, ensuring transparency and adherence to the 28 percent GST slab. Key compliance areas include the clear display of rules, privacy policies and user agreements on their platforms. Additionally, platforms are required to appoint resident grievance officers, chief compliance officers and nodal contact persons, all based in India.

The silver lining of 28 percent GST on gaming: crackdown on offshore betting firms

The gaming industry in India has experienced impressive growth in the last two years, outperforming a lot of leading markets in terms of userbase, technology, and monetization options. 

However, the introduction of the new GST tax slab and valuation methodology has raised concerns within the sector. Industry stakeholders fear that the significant rise in GST could have a negative impact on the overall growth of the industry. Small and medium players, operating on slimmer profit margins, are expected to be the worst hit. 
Despite the Finance Minister's clear stance on the tax decision, stakeholders remain hopeful that the government will consider the potential challenges faced by MSMEs in the industry.

“This was an expected move from the government but at an industry level it is expected to affect online gaming both RMG and non RMG on their user base, revenues and overall gaming experience,” said Soham Thacker Founder CEO Gamerji.

The nearly 4X rise in GST will shackle the industry’s growth as per Siddharth Sharma, SVP- Business Strategy, Head Digital Works (A23) and businesses will have to we pivot their business models to adapt to the new tax regime. 
While re-strategising business models might be an option for the larger profit making players for the smaller online gaming enterprises, the weight of this taxation could prove to be insurmountable as per stakeholders. 

“These businesses typically operate on slimmer profit margins and possess fewer resources when compared to their larger counterparts. The cumulative effect of these taxes could severely curtail their ability to maintain operations, invest in technological advancements, and provide enticing incentives to attract gamers,” said Indie fantasy platform Super4’s founder, Rohit Bansal.

According to Bansal, it is imperative that the GST Council reevaluates this decision and supports a more equitable approach that acknowledges the unique challenges faced by smaller industry players. 
Sudipta Bhattacharjee, Partner, Khaitan & Co said many smaller start-ups in the business may have to shut shop even before the expiry of the review period of six months.

“The problem remains that GST, despite being a tax on supply of goods/service, is being levied on a value that is much higher than the actual revenue earned by the online gaming platforms for their supply of facilitation services to players. Though a reconsideration was sought by the State of Delhi, it was unfortunately overruled,” Bhattacharjee said. 

Investors in this sector may continue to be concerned given the ‘blow hot, blow cold’ approach towards online gaming according to her. 

“On the one hand, the sector is lauded and encouraged through ‘light touch’ regulations by the MeITY and on the other hand punitive taxation is reaffirmed to be imposed under GST (despite several pleas from the sector) by levying the same level of GST as ‘betting and gambling’ on online games of skill, ignoring decades of settled legal position that games of skill cannot be equated with gambling,” she added. 

In spite of all the clarifications provided by the finance minister in the press briefing post the August 2 GST Council meet, some areas still remain unexplained. 

Technology and gaming lawyer Jay Sayta pointed out, that while it 28 percent GST will be applicable at the stage of purchase of chips or deposit into the online gaming wallet and not on winnings reinvested to enter future games or contests, whether chips or deposits that are returned by the customer or withdrawn would be treated as refund of goods and eligible for offset or credit of GST.

Further, the Revenue Secretary has also indicated that the department intends to pursue claims on retrospective dues and has filed an appeal in the Supreme Court against the Karnataka High Court order that quashed the Rs 21,000 crore GST notice against Gameskraft.

“If the department is amending the law on a prospective basis, it is entirely irrational and illogical to pursue claims for retrospective dues for which there is currently no legal provision,” Sayta said.

Finally, the fact that there was no complete consensus or unanimity within the council and that the possibility of review of the decision after six months of implementation has been left open is a sign of the complexities involved in the issue. 

“Hopefully, there will be a complete review of the decision in the second half of 2024 and the industry’s demands to tax on Gross Gaming Revenue (GGR) would be positively considered in the future,” he added. 


GST Council decision on online gaming: Industry voices concerns and hopes for future review

The online gaming industry is anxiously awaiting the GST council meeting tomorrow. The GST Council is set to meet on August 2 to address concerns and provide clarity on tax treatment after the recent decision to impose a 28 percent tax on the face value of real-money games. 

The revised tax proposal has caused an uproar in the online gaming industry. Malay Kumar Shukla, Secretary, E-Gaming Federation had said 28 percent tax on full face value will lead to a nearly 1000 percent increase in taxation and prove catastrophic for the industry.

Stakeholders also fear that the tax burden will not only make the online gaming industry unviable but also boost black-market operators at the expense of legitimate tax-paying players.

Entrepreneurs in the gaming industry also penned an open letter to the government, expressing their concerns over the announcement. The letter, signed by approximately 130 entrepreneurs, highlighted the industry's distress following the GST Council's recommendation to classify online skill gaming with betting and gambling.

One of the key issues raised in the letter is the proposal to levy GST on the full deposit value, a move that is anticipated to derail the industry's growth trajectory. In the letter, the entrepreneurs also emphasized the potential devastating implications for micro, small, and medium enterprises (MSMEs) and startups, which may lack the financial reserves to withstand such a substantial tax increase.

While it is unlikely that any changes will be made to the new tax slab proposal, stakeholders are hopeful that there might be changes introduced to the valuation methodology. 

“If the tax is the platform fee, it protects the interests of the entire online gaming ecosystem, consisting of around 850 Indian registered companies,” said a representative from a central gaming associations body. 
As per the association, this methodology would allow the government to achieve its objective of increased revenue while also ensuring the sustainability of the majority of gaming businesses.

Stakeholders have submitted their representations to the government, requesting consideration of the platform fee-based valuation or the net deposit method, which would ensure fair taxation and prevent multiple taxations on the same amount. 

Overall, the industry is hopeful that the government will consider their concerns and arrive at a fair and sustainable decision for the valuation of GST on online gaming platforms.

As per Statista, the online gaming industry across India was valued at around Rs135 billion s in the year 2022, marking a leap from about Rs101 billion in the previous year. The sector was expected to be worth over RS 231 billion by 2025, indicating a compound annual growth of around 19 percent. It remains to be seen whether these numbers can be achieved after the new GST slab is implemented. 


