In August 2023, the Goods and Services Tax Council was reported to have proposed a 28% tax rate to collect more revenue from India’s gambling industry. GST aimed to collect approximately 1 trillion rupees (around $12 billion) in tax if the newly proposed tax bill took effect.
According to Reuters, the changes made to the Goods and Services Act would include a 28% tax rate on the total funds deposited to online gambling platforms.
This led to some betting firms expressing their frustrations, with others laying off their employees.
However, the country’s federal Finance Minister, Nirmala Sitharaman, clarified that the bill would not apply to each bet placed but to the total funds deposited for playing online games in India.
While this clarification gave partial relief to online gambling sites operating in the country, some firms wrote to the government asking for a reconsideration of the decision.
The tax bill took effect from October 1st, with its reviews expected to commence in the next six months.
The Subject of Online Betting is Still a Gray Area in India
There is no federal law prohibiting online gambling in India. Gambling is regulated at the state level in the country. For instance, Indians can purchase online lottery tickets from offshore casinos, which may be permitted in some states but prohibited in others.
As such, the subject of what constitutes gambling is still a grey area in the country. For example, circling back to the topic of lotteries above, some states prohibit games of chance and probability but allow lottery games.
Again, in some states, rummy, online poker, and blackjack are categorised as games of chance, while spinning a reel of an online slot is considered a game of luck.
Therefore, in many jurisdictions, regulators usually view these games differently when it comes to taxation.
In this case, categorising what constitutes gambling activities in India will shed light on the nuances surrounding this subject, as well as the newly passed tax bill.
The Tax Bill Favours Offshore Betting Operators More
The tax bill will make it hard for online casinos regulated in India to compete with offshore operators in the future.
Moreover, both Indian players and gambling operators will suffer the implications in the coming years. However, players could suffer more since the firms operating in the country may decide to pass the constraints to customers.
Such an outcome could see offshore casinos continue to entice more customers from India to move away from gaming sites regulated in the country, which could significantly affect the growth of India’s gambling industry.
Moreover, some gaming operators believe that the move will significantly alter the odds offered to players and reduce potential payouts — an outcome they say will significantly affect their business models.
The Hurdles Facing India’s Tax Authorities
While grant-in-aid has contributed massively to the performance of some states like Gujarat, most states have to rely on their own taxes and non-tax revenue to operate. However, gambling tax in India is under the mandate of the GST, leaving states with less revenue resources.
GST was launched in 2027. However, it was boycotted immediately by the Opposition in a parliamentary session, citing that the body would reduce taxes on luxury products and heighten rates on common daily goods.
One of the problems GST could encounter is less revenue turnover than what it used to generate in the past years. Before the newly passed bill took effect, most operators, particularly those offering games of skill, would pay 18%, with firms providing games of chance paying a slightly higher tax rate.
Another problem is that, while a 28% tax rate seems high, revenue turnover from the gambling industry might dwindle in the coming years. This is because some operators are expected to pull out of the Indian gambling industry in the future, leaving the council with fewer firms from which to generate revenue.
Besides, 1 trillion rupees is over ten times more than the annual revenue generated by the Indian gambling industry in the past years.
Since there is no federal law prohibiting online betting in India, there is a need for a proper regulatory framework to accommodate both parties. It could also lay a foundation for a realistic tax rate to provide online casino operators with a more appealing proposition.
Nonetheless, online betting will remain popular in India, whether there is a proper
legal framework at the federal level or not. Therefore, it is in both parties’ interest to apply a regulatory model that will favour everyone involved.