GST Council recommends 28% tax rate for online gaming and clarifies ISD is not mandatory

This Tax Alert summarizes the recent press release issued by the Ministry of Finance on various recommendations made by the Goods and Services Tax (GST) Council in its 50th meeting held on 11 July 2023.

The key recommendations are as follows:

• A uniform tax rate of 28% will be applicable on face value of the chips purchased in case of casinos, full value of the bets placed with bookmaker/ totalisator in case of horse racing and full value of the bets placed in case of online gaming.
  
  
• Input Services Distributor (ISD) mechanism is not mandatory as per the present provisions of GST law. However, amendments may be made in the GST law to make ISD mechanism mandatory prospectively.
  
  
• Compensation cess @22% to be applicable on all utility vehicles if it fulfils the specified criteria.
  
  
• Goods and Services Tax Appellate Tribunal (Appointment and Conditions of Service of President and Members) Rules, 2023 is proposed. Provisions of Finance Act, 2023, pertaining to Appellate Tribunal may be notified with effect from 1 August 2023.
  
  
• Procedure laid down in Circular No. 183/15/2022-GST for verification in cases involving difference in ITC during FY 2017-18 and 2018-19, shall also be made applicable for the period 1 April 2019 to 31 December 2021.
  
  
• Rule 88D is proposed to be inserted to provide a mechanism for system-based intimation to taxpayers in case of excess availment of ITC in GSTR-3B vis-à-vis GSTR-2B, along with the procedure to explain the reasons or take remedial action.

Comments

• Clarification regarding ISD sets at rest the ambiguity that was created due to interpretation of GST provisions and few advance rulings. Once it is made mandatory, the same may involve complete overhaul of cost allocation process, tracking mechanism and identification of expenses where credit will need to be distributed to units/branches. 
  
  
• Coupled with the 28% tax rate, the chargeability on full value of bet may be detrimental to the online gaming industry. It may be crucial to see the manner in which the amendments may be carried out in the GST law for levying the tax on gaming service providers.
  
  
• The mechanism to deal with the difference in ITC between GSTR-3B and GSTR-2B seems to be intended to tackle fraudulent ITC claims. Businesses may have to be prepared with the reconciliation statement to substantiate the genuineness of the ITC claim.
  
  
• Clarification regarding admissibility of refund in case where proceeds are received after the timelines, manner to calculate IGST credit utilization and non-taxability of activity of mere holding of securities is likely to provide much needed relief to the industry and may help in avoiding unwarranted litigation.
  
  
• As done in the past periods, the taxpayers may need to obtain the requisite certificates in order to reconcile the ITC difference between GSTR-3B and GSTR-2A for the period up to 31 December 2021.
  
  
• Providing details of supplies made to registered persons in India by OIDAR service provider may lead to additional compliance.
  
  
• Council’s decision to expedite formation of GST Appellate Tribunal is a welcome move and may benefit taxpayers who want to litigate the issues in appeal.