GST@28%: Higher tax burden and decreased winnings could drive gamblers to the grey market.

Online gamblers may turn to the underground market as a result of the proposed 28% increase in the goods and services tax.

According to attorney Jay Sayta, the increased taxes will have an effect greater than ten times that of the tax already paid by gamers.

Previously, GST was paid at the rate of 18% on the Rs 5, or 90 paise, if a player wagered Rs 100 and the platform charge or commission of the online gambling website was 5%. He continued, "Under the proposed proposal, the consumer would be responsible for a tax that is 31 times greater than the tax that is already being borne by the consumer, since the 28 percent tax on the Rs 100 entry charge (28 percent GST is on the face value) would be Rs 28.

On July 11th, the GST Council proposed a uniform 28 percent tax on the entire face value of all casino, horse racing, and online gaming.

Saket Patawari, executive director, of indirect tax, Nexdigm, noted that GST at 18% was collected on gross gaming revenue or the platform fee, which ranges from 5% to 20% of the value of bets placed.

More expensive

The GST Council has decided that an up-front GST of 28% must be charged on the full Rs 100 wager amount. According to Patawari, "after deducting the platform fee, the player's contribution towards the prize money would be significantly reduced."

He suggested raising bet sizes to account for the GST's 28% cut, which would leave the prize pool unaltered.

"This could scare off players because they'd have to pay more than they are now," he warned.

The current Goods and Services Tax (GST) rate for Gamerji, a platform that provides gaming on a subscription basis, is 18%.

According to the company's creator, "this now has gone up by 28 percent," making it more expensive for customers to join the site.

However, Prashant Joshua, 1verse's founder, argues that the hike in tax rate will eat away at the prize pool amounts despite the fact that gamers' outlays won't alter. He noted that this would cause a loss of income for both the government and the platforms as gamers sought for alternatives to complying with the law.

Unsustainable for gamers

According to Thacker, winnings are already subject to a 30 percent tax deduction at source (TDS).

"This action would have a setback on business and customer base of real money gaming enterprises," Thacker added. "This step (28% GST on face value).

According to Karan Gandhi, co-founder of PokerDangal, not only does the increasing tax burden put strain on the profitability of operators, but it also risks dampening the enthusiasm of players.

L Badri Narayanan, executive partner at Lakshmikumaran & Sridharan, said that TDS on the winning amount, in addition to taxing the whole value of the wagered money, will significantly affect the prize pool and incentives for players.

Customer interest will be impacted because this will help the growth of grey market operators and the dark web. He further noted that the GST Council's approach was not in line with standard international taxation procedure.

Sayta argued that the new tax rate of 30 percent or more, on top of the current GST rate of 28 percent, would make it impossible for gamblers to turn a profit under any circumstances.

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Is GST on total consideration for online gaming fair?

"The number of active gamers or those who would want to play in a legitimate manner would certainly reduce as winning any amount on a consistent basis is almost impossible. Gamers would be forced to use illegal offshore gaming platforms that may even cheat their money or not pay out winnings and they may not have any recourse. The move will also result in the flight of money outside India through illicit channels for playing on foreign gambling or betting websites," he added.

Illegitimate platforms

According to Roland Landers, CEO of the All India Gaming Federation, offshore online betting and gambling companies that provide services unlawfully in India are not compelled to comply with consumer protection and user safety regulations, which is harmful to the interests of Indian gamers.

He estimated that there are approximately 450 million gamers in India, and that many of them could be tempted by the underground economy.

The Twitter bio for online bookmaker 1xbet already boasts, "NO 28% GST AND TDS."

According to Utkarsh Sinha, managing director of Bexley Advisors, the possibility for moving participants almost totally towards untrustworthy unregulated businesses considerably outweighs the benefits that the government could gain from the increased tax collection. As a result of the higher tax, businesses will either lower prices to keep customers or see a reduction in their client base if they pass the cost on to consumers.

Revenue Secretary predicts a yearly gain of Rs. 20,000,000,000 from a 28% GST on online gambling.

Witzeal Technologies' vice president of finance, Aman Gupta, warned that a rise in the tax rate will ultimately reduce the value of the prize pool.

The use of Indian skill gaming platforms will be discouraged. Players are likely to look elsewhere, such as on offshore or illegal gambling sites, even if the platforms decide to charge no or little platform fees. He predicted that both skill gaming businesses and the government would see significant losses in revenue as a result.