Casino Operators, Online Gaming Firms Have A Big Tax Problem
Casino operators and mobile gaming companies in India could end up paying tax on an amount that’s not even part of their revenue.
Casino operators and mobile gaming companies in India could end up paying tax on an amount that’s not even part of their revenue, if the interpretation by the goods and services tax office prevails.
The Directorate General of GST Intelligence summoned Delta Corp Ltd.’s executives and raised a tax demand of Rs 6,189 crore, a person privy to the development told BloombergQuint on the condition of anonymity as the information isn’t public. But the company—which is India’s only listed casino operator—said in an exchange filing that it didn’t receive any tax notice. The company declined to comment on BloombergQuint’s queries.
The firm reported a revenue of Rs 582 crore for the year ended March, of which Rs 107 crore was paid as GST, according to its exchange filing. Shares of Delta Corp have tumbled about 88 percent since April.
The interpretation revolves around section 15 and Rule 31A(3) under Central GST Act.
The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid for the supply of goods or services.Section 15
The value of supply of actionable claim in the form of chance to win in betting, gambling or horse racing in a race club shall be 100 percent of the face value of the bet or the amount paid into the totalizator.Rule 31A(3)
The GST department is interpreting these together to mean that casino operators need to pay GST on the total value of all bets placed by players, and not just the commission they earn. Here’s an illustration to explain the tax department’s point of view:
- An individual buys gaming chips at a casino.
- The person uses the chips to place multiple bets and pays the casino a fee on each one of them.
- The taxman wants the casino to pay tax on the total value of the bets placed.
But the casinos have argued that GST should not be levied on the total value of bets but only the commission they receive. Broadly, there are two formats that casinos offer—one where the customer plays against the casino, and the other where individuals play among themselves. In both formats, the casinos charge a commission or a service fee.
All India Gaming Federation, a lobby of the gaming industry, has written to the finance ministry, saying that under section 15, the value of supply is the price payable for the services by the recipient. The transaction value of service provided by a casino is the amount retained by the casino and will not include the amount which will be won by the player, it said. BloombergQuint has reviewed a copy of the letter.
Use of casino currency for a bet doesn’t amount to supply. The supply is completed after conclusion of the gaming activity when the customer exchanges the remaining casino currency for legal currency. The amount exchanged for the legal currency amounts to a ‘supply’ on which GST should be levied,Letter By All India Gaming Federation
Valuation rules define the value of a betting transaction to be the face value of a bet which may not be the actual monetary value paid by the customer, said Krishan Arora, a partner at Grant Thornton India LLP. This somehow, contradicts the true spirit of law, which intends to tax actual transaction value as per section 15, Arora said.
There seems to be ambiguity in taxation of casinos under GST due to valuation provisions which need to be addressed. Casino operator only earns a fraction of the bet placed while there could be multiple wins and losses to customersKrishan Arora, Partner, Grant Thornton
The industry federation, in its representation, has said that prior to GST, entertainment tax was levied in Goa and Sikkim—where casinos are allowed—on gross earnings of casino. It’s the value of currency exchanged at the time of entering the casino minus the value of currency exchanged at the time of exit.
The entertainment tax provisions placed taxability on net earnings of casino operators and not the entire face value of bets, Arora from Grant Thornton said. Similar methodology is followed internationally on such gaming, if not fully exempted, he said.
A bet placed at a casino is equivalent to a service being provided by the casino operator, and the tax needs to be paid on the entire betting amount, said Udit Gupta, partner at Udit Kishan and Associates. “However, this is expected to lead to legal complications, the government should issue a clarification on the same.”
The issue isn’t limited to casinos. The tax authorities are also going after fantasy gaming platforms like Dream 11 to tax them on the total betting amount, and not just the commission they earn. Dream 11 Fantasy Pvt. Ltd., India’s largest online gaming company, declined to comment to emailed queries.
The tax department’s view threatens to stall the growth India’s gaming industry. A Frost & Sullivan report last year forecast the industry to grow from $338.4 million in 2017 to $1.1 billion in 2021, driven by the increasing popularity of online platforms. BloombergQuint is awaiting the finance ministry’s response to an emailed query.