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Kerala Enacts 28% GST on Online Gaming: A New Era of Regulation

Last updated: 09 February 2024

On January 8, 2024, Kerala Governor Arif Mohammed Khan approved an ordinance to revise the state’s GST laws on gambling. This action aligns with the 50th GST Council's decision for a 28% GST on casinos, horse racing, and online gaming bets. But where is this going, exactly?

Revising Kerala’s GST on gambling activities began with a strategic cabinet meeting in Thrissur, closely followed by the Union Government's endorsement and the GST Council's resolution. This chain of decision-making culminated in the imposition of a 28% GST on the gross bet value across casinos, horse racing, and online gaming platforms.

By applying the GST to the initial bet value—excluding winnings—the Kerala government aligns with Finance Minister Nirmala Sitharaman's vision for a transparent, fair taxation system. This move not only clarifies the tax obligations for players and operators but also aims for uniformity across the states.

However, the backdrop of this legislative change is tinged with concerns over tax evasion, highlighted by the 71 show cause notices issued to online gaming entities, flagging potential GST dues worth Rs 1,12,332 crore. These notices underscore the government's crackdown on tax avoidance and signal a tighter regulatory leash.

Kerala Enacts 28  GST on Online Gaming: A New Era of Regulation

The ordinance serves a dual purpose: increasing tax revenue from a booming sector and tightening the regulatory framework to ensure fair play and compliance. Through these lenses, Kerala's GST amendment stands as a landmark shift towards more rigorous oversight and standardized taxation within the gambling sector.

More importantly, Kerala's introduction of a 28% GST on online gaming presents a turning point for India's already massive online casino and gambling industry. This sector, particularly the mobile casino scene, has seen explosive growth, and has since become a staple pastime for millions. Its widespread popularity demonstrates the significant impact that this tax adjustment is expected to have.

The new tax regime forces gaming companies to cope with operational changes and compliance hurdles, which are further complicated by the burden of retrospective tax liabilities. People who were caught off guard by the unexpected imposition of backdated dues may face financial difficulties for a while.

Yet, this upheaval also opens doors to consolidation and innovation within the industry. Companies that adeptly manage these changes can solidify their market position, and capitalize on a more regulated, yet still burgeoning, gaming ecosystem.

For the gaming industry, the GST increase could result in higher costs and potentially reshape player demographics. In contrast, stronger legal safeguards promise a safer gaming environment, addressing long-standing concerns about fairness and transparency.

In the midst of these developments, the Kerala GST Department recently issued Circular No. 01/2024, which provides guidance for filing appeals in the absence of a functional GST Appellate Tribunal. Kerala protects the rights of businesses and individuals during this transition by allowing taxpayers to file appeals against orders issued by the first appellate authority without the immediate pressure of recovery actions.

As the first state to align with the Union Finance Ministry's directive and the GST Council's recommendations, Kerala paves the way for a nationwide approach to gambling regulation. Its successful implementation could serve as a model for other states. However, this move introduces a complex web of challenges.

It increases operational costs for gaming companies, potentially reducing market competition as smaller players may struggle to survive. This increase in taxation could also deter players, particularly those with smaller stakes, and impact overall participation in the gaming sector.

Moreover, the abrupt shift to a new tax regime, especially with retrospective liabilities, poses significant compliance and financial obstacles for companies. This could inadvertently lead to legal disputes and a push towards tax evasion tactics. Furthermore, the uniform tax rate fails to distinguish between different types of games, affecting some more than others and possibly leading to consumer backlash or a rise in unregulated gaming activities.

Overall, while Kerala's initiative establishes a regulatory benchmark, it faces the difficult task of handling these ramifications to ensure the gaming sector's healthy and equitable growth.

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