Earlier this year, lawmakers in India pushed forward a significant change in the taxation for online gambling. At the time, the regulatory body in charge of recommendations to the implementation of the Goods and Services Tax (GST), the Goods and Service Tax Council, greenlighted a proposal for the introduction of a 28% tax applicable for gambling activities, including online gambling, casinos and horseracing. The changes effectively increased the tax rate for all gambling, as well as gaming activities such as fantasy sports to 28%.
Previously, the tax rate applicable for gaming activities like fantasy sports was 18%. However, with the recent change, gaming activities are taxed the same way as gambling activities. To make matters worse, the Council said that the new tax rate would be backdated to the introduction of GST which happened back in July 2017.
The taxes for gambling and gaming activities were previously applied to each operator’s gross revenue. This has also changed, and taxes are now applied to the total amount wagered by the players.
The combination of those controversial decisions has put many operators in a difficult spot and according to one industry expert, the Indian government may face further challenges soon. Ritesh Kumar Singh, the founder and chief executive of Indonomics Consulting, a policy research and advisory company, recently commented on the topic in an opt-ed released by Nikkei Asia. Explaining the current situation, he revealed that many companies within the gaming and gambling sector may go bankrupt.
Citing recent reports, Singh said that companies within the sector have already received notices about billions of rupees past due. Moreover, he cited reports of companies, claiming they are asked to pay 10 times their annual revenue due to the new taxation.
Tax Rate May Push Operators to Operate Illegally, Conceal Revenue
The industry expert explained that India’s public debt currently exceeds 90% of GDP and while the government is trying to control this, tax revenue remains around 11% of GDP. “Consequently, New Delhi feels compelled to enact stringent tax measures to bridge its revenue gap. The unfortunate consequence is a resurgence of exorbitant tax demands on business and an apparent increase in rejections of GST refund claims,” explained Singh.
Focusing on the gambling sector, he predicted that despite ramped-up taxes, gambling operators will continue to offer their services rather than disappear, considering the high demand. However, Singh warned that the increased tax rate may push some operators to conceal cash transactions in order to reduce the tax they pay. Finally, he warned that other gambling operators may consider operating illegally.