The Indian gaming industry is waiting anxiously for the Supreme Court decision on the Goods and Services Tax (GST), which has hung over the sector like “an axe”, a Goan finance consultant told AGB.
In August of last year, the GST Council implemented a 28 percent tax on the entire wager amount for online real-money gaming. This move was met with criticism from stakeholders, including gaming startups, industry bodies, and investors, who argued for a reconsideration of the tax rate.
Following these concerns, the GST Council approved amendments in August, which came into effect from October 1st. Under the new guidelines, a flat 28 percent tax is levied on the total value of bets placed in online games, regardless of whether they are considered games of skill or chance.
Prior to these changes, a lower 18 percent GST was applied only on the platform fee charged for skill-based games.
The implementation of the new tax structure has had significant consequences, with several online gaming startups receiving notices demanding the payment of over Rs1.12 lakh crore ($15.38 billion) in due taxes, pertaining to the 2023-24 financial year.
The country’s online gaming sector, which has seen exponential growth in recent years, has demanded clarity on the GST framework, with the country’s Supreme Court set to examine a series of appeals challenging tax notices.
“The GST change has become a significant issue here, especially for the casino industry,” Pinto, a former PwC senior associate told AGB said.
Goa is home to India’s largest concentration of casinos, with Pinto warning that the new GST regulations have stifled its growth, with local casinos now dealing with an enormous challenge as they face demands for back taxes totaling billions of dollars
“It’s like an axe hanging over their heads,” he says, explaining that the industry is facing demands for back taxes totaling billions of dollars. Delta Corp, one of the largest casino operators in Goa, has been hit particularly hard, with tax notices far exceeding its market capitalization. “These notices are larger than their market cap,” he added.
Delta Corp has seen a steep decline in revenue and net profits during the second quarter of this year, when compared to the same period of last year, primarily driven by a slowdown in gaming operations.
The company and three of its subsidiaries received a notice for alleged short payment of the Goods and Service Tax (GST) amounting to Rs23.2 billion ($277 million) for the period from July 1st, 2017 to November 30th, 2022.
Pinto points out that Delta Corp showed in its first quarter report that the company’s business has contracted but not collapsed and “if a favorable judgment were to come on the back taxes issue” the company would go ahead and start developing more casinos. Until now, the operator has “looked to move its focus to the real estate sector”.
As the issue has now reached India’s Supreme Court, casino operators are waiting for a ruling that could determine their future. “It’s not been decided yet, but this legal uncertainty is delaying key projects,” Pinto noted.
One such project, he says, is a planned 90-acre casino in the village of Dhargalim, which has been put on hold due to the regulatory environment.
The recent GST regulations were initially introduced to address the booming online gaming industry in India, which has emerged as one of the country’s most successful startup sectors.
However, as Pinto pointed out, the changes have had an unintended effect on the traditional casino industry. “These laws were brought in to tackle online gaming, but unfortunately, they’ve also hit the casinos,” he said.
Despite the challenges, Pinto remains cautiously optimistic that the government might reconsider its stance. “I don’t expect them to bring anything more, if anything, they might reduce it,” he suggested, pointing out that India’s current gaming tax rates are comparable to Macau’s, which are among the highest in the world.
“The back taxes are the one thing that investors are really concerned about… It’s a huge ask for them.”
David Pinto
Modi’s focus on the 3rd term
Although Prime Minister Narendra Modi has secured a third term, his Bharatiya Janata Party (BJP) failed to achieve an outright parliamentary majority, falling well-short of its 370 target (400 with coalition partners) in the 543-seat lower house of parliament.
When asked whether Prime Minister Modi will push for further expansion of gaming or increase restrictions in his new term in office, Pinto believes the answer will depend on the courts GST decision.
Still, Pinto noted that the government is likely to view organized gaming as beneficial in the long run. “From the government’s perspective, organized gaming is better than having a large sector of unorganized gaming,” he said. “Gaming is one of those sectors, like tobacco, where you can charge very high taxes, and people will still participate.”
Culturally, gaming remains a sensitive topic in India. “The Indian populace is not very friendly towards gaming from a cultural point of view,” Pinto explained. While unorganized gaming is common in parts of India, such as the north, organized casinos still face cultural resistance. “Casinos are seen as part of a sin culture, which many in India find difficult to accept,” he said.
Pinto also addressed a recent partnership between a Goa offshore casino and a Sri Lankan hotel group, noting this has raised eyebrows locally.
Goa’s Golden Island Hospitality Private Limited has officially teamed up with India’s Majestic Group Hotels & Casinos to establish a Majestic Pride Casino in Colombo, Sri Lanka.
This new casino will be located in the city’s Lotus Tower landmark in Colombo 10, with the company promising a ‘premium gaming experience’.
“There was a discussion in the legislative assembly about why we’re promoting another state,” Pinto revealed, referring to the controversy over Sri Lanka’s presence in Goa’s tourism market. “Goa’s main revenue comes from tourism, so people were questioning this.”
Despite the issues facing Goa’s casino industry, Pinto remains hopeful for the future, contingent on the outcome of the ongoing legal and regulatory battles. “The industry is still very nascent, and with the right support, it has the potential to grow,” he concluded.
