Casinon India Logo
Close this search box.

Spotlight on India: Scrutinizing Kerala’s 28% goods and services tax

Spotlight on India Scrutinizing Kerala’s 28% goods and services tax

On 5 January, Arif Mohammed Khan, the governor of Kerala, sanctioned an order officially elevating the state’s goods and services tax (GST) on gambling from 18% to 28%.

The decision to enforce the new 28% GST in Kerala signifies a follow-through for amendments to the Central Goods and Services Tax Act 2017 and the Central Goods and Services Tax (Third Amendment) Rules 2023, which occurred in August and September of 2023.

The GST pertains to the sum paid to – or deposited with – an online gambling company. This encompasses online casinos, horse racing (betting), and online gaming. From the perspective of Nishith Desai Associates, however, the GST should only be relevant to the platform fee.

India’s central government has communicated through the finance minister that the 28% rate will be reassessed after six months. In the interim, Khanna states that the process of enacting the GST is well underway.

“Various Indian states have executed the GST rate, or are in the process of executing the GST rate through such state laws, including Kerala,” Khanna elucidates.

Regarding whether 28% is simply too high, Khanna believes it could cause some deterrence. Overall, though, Khanna feels it will not significantly impact India’s flourishing gambling market.

“The high GST rate may certainly disincentivize smaller operators and gaming startups,” she continues. “However, the existing market is already quite competitive.”

Could the GST be applied in India retrospectively?

The implementation process for the new GST rate has been far from smooth. India’s tax authorities are seeking to enact the 28% rate retrospectively. They have been issuing show cause notices to real-money operators, alleging GST evasion.

According to media reports, notices were issued to 71 operators, totaling ₹1.12tn.

“GST is only for the indirect tax mechanism,” explains Sharma. “Earlier, the GST of 28% on games of chance and 18% on games of skill enabled it to have a differentiating regime even in the field of indirect taxation.

“The GST department has issued notices claiming that the tax is to be paid from 2017, as the notification was simply a clarification.”

Khanna believes this will have a tremendous impact on operators.

“These show cause notices have been contested before the Indian courts – High Courts of States and Supreme Court,” she explains. “The next date of hearing before the Supreme Court is 2 April 2024.”

The impact is poised to be so significant that it might overshadow the new GST rate imposition altogether, posits Sharma.

“Just the imposition of the enhanced percentage of GST is not the issue, as it will get offset by the GST via its inputs,” she explains. “However, the interpretation of imposing from a retrospective effect and also on the face value of bets has put the market in jeopardy, making it prohibitive.”

From here, the legal challenges against the GST rate will only intensify. The government has informed India’s Supreme Court that it will transfer all pending GST challenges currently before the High Courts to the Supreme Court.

“Hence, the issue will come to a head this year before India’s apex court,” says Khanna. “The business impact of this decision will be significant.

Latest News