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Kerala's New Gambling Tax Sparks Industry Discussion in India

The recent decision by the governor of Kerala to increase the state's goods and services tax (GST) on gambling from 18% to 28% has triggered discussions within the gaming industry in India. Tanisha Khanna, co-head of the gaming practice at Nishith Desai Associates, and Dr Aruna Sharma, retired secretary of the government for India, share insights into the implications of this tax hike and its potential impact on the gaming landscape.

Kerala's New Gambling Tax Sparks Industry Discussion in India

The move to raise the GST follows amendments to the Central Goods and Services Tax Act 2017 and the Central Goods and Services Tax (Third Amendment) Rules 2023. The increased GST of 28% applies to the amount paid to or deposited with an online gambling company, covering casinos, horse racing, and online gaming. Khanna, however, argues that, from the perspective of Nishith Desai Associates, the GST should only be applicable to the platform fee.

While the central government has indicated that the 28% rate will be reviewed after six months, Khanna suggests that the process of enacting the GST is already well underway in various Indian states, including Kerala. She notes that the high GST rate could potentially discourage smaller operators and gaming startups, although the existing market is already highly competitive.

Retrospective Implementation Challenges and Legal Battles

The implementation of the new GST rate has faced hurdles, with Indian tax authorities seeking to apply the 28% rate retrospectively. Show cause notices alleging GST evasion have been issued to 71 operators, amounting to ₹1.12tn. Khanna explains that these notices have been challenged in Indian courts, with the next hearing scheduled before the Supreme Court on April 2, 2024. The retrospective application of the GST is expected to have a significant impact on operators, and the legal challenges are likely to continue.

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Broader Legal Landscape and Industry Evolution

The discussion extends to the broader legal landscape of gaming in India, including the recognition of games of skill. Sharma notes that while rummy was officially recognized as a game of skill in 1968, Kerala has not acknowledged court directions on rummy and horse racing being games of skill. The absence of a central mechanism to classify games as games of skill has led to challenges, and attempts to introduce a co-regulatory mechanism with self-regulatory gaming bodies have faced hurdles.

Khanna points out that litigations in various Indian states, such as challenges to bans on skill games in Tamil Nadu and Karnataka, are significant developments. These cases have been challenged by state governments before the Supreme Court, potentially influencing state policies toward games of skill. Additionally, Khanna highlights the interest in how the amended Information Technology (IT) rules will be implemented and regulated by the IT ministry.

The Road Ahead for India's Gaming Industry

Looking ahead, Khanna anticipates key litigations in 2024, particularly those challenging bans on skill games. The legal landscape and regulatory framework for gaming in India remain dynamic, with the industry closely monitoring legal proceedings and government initiatives. Sharma expresses optimism about India's potential to emerge as a hub for igaming developers, emphasizing the government's commitment to regulating the gaming industry and ensuring responsible practices.

As India navigates regulatory and taxation challenges in the gaming sector, stakeholders in the industry remain vigilant, awaiting the outcomes of legal battles and anticipating the evolution of online gaming in the country.


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