28% GST on Online Games, Reduced Prices for Cola and Popcorn in Movie Halls

In a recent development, the GST Council made a significant decision regarding taxation. They have decided to impose a 28% tax on the face value of “bets placed” in online games, chips purchased at casinos, and bets made with bookmakers at horse races. However, in a positive move, they have also reduced the tax rate on food and beverages sold in cinema halls. This decision aims to strike a balance between taxation on recreational activities and providing some relief for consumers enjoying refreshments during their cinema experience.

In addition, there were revisions made to redefine sports utility vehicles. Furthermore, specific imported medicines and food products utilized by individuals with rare diseases were exempted. Additionally, the services provided by private organizations engaged in satellite launches were exempted from GST.

Movie enthusiasts have a reason to celebrate as the Council has announced a significant reduction in taxes for cinemas. The tax rate on cinema tickets will be slashed from 28% to 5% GST, bringing it in line with the rates applicable to restaurants. According to an official statement, when cinema tickets and the provision of food and beverages are bundled together and qualify as a composite supply, the entire package will be subject to GST at the rate applicable to the exhibition of cinema, which is considered the principal supply. This clarification brings clarity and uniformity to the taxation of cinema-related services.

While the finance minister, Nirmala Sitharaman, emphasized the government’s intention to support the gaming industry, there were grievances expressed by the industry itself. It was made apparent that although the Centre and the states were keen on promoting the sector, their efforts would not prioritize casinos and online games over essential commodities.

During their 50th meeting, the influential panel consisting of Union and state finance ministers made a crucial decision regarding the tax proposal concerning online gaming and casinos. After extensive deliberation spanning nearly three years, the panel finally decided to take a bold step forward, despite facing intense lobbying from influential stakeholders. The proposed changes entail amending the existing law to encompass online games and horse racing under the scope of GST. Furthermore, the distinction between “game of chance” and “game of skill” has been eliminated as a result of this decision.

The distinction between skill-based and chance-based activities is not our focus here. What we are concerned with is identifying what should be subject to taxation,” Sitharaman informed reporters. She emphasized that this decision was made after thorough discussions within the Council and taking into account the concerns of states that relied on casinos as a means to attract tourists.

Industry experts are closely monitoring the drafting of the amendment, as India stands out as the only country imposing GST on the full face value of all types of online games. The comprehensive proposal to apply GST on the full face value of online gaming may potentially resolve the ongoing debate between ‘game of skill’ and ‘game of chance’ that is currently under judicial review. This amendment would place ‘game of skill’ on equal footing with gambling and betting contracts. From a revenue standpoint, the proposed amendment is expected to make a significant contribution to the national treasury and highlight the revenue generation potential of states like Goa and Sikkim. Implementing this change would necessitate several amendments to the GST law, particularly concerning the definition and taxability of actionable claims under GST. The key aspect yet to be determined is whether this change will apply prospectively or have a retrospective impact. Kishore Kumar, the head of Taxmann’s indirect tax practice, shared these insights.

Summary 

The GST Council has announced a 28% tax on bets in online games and casino chips, while reducing taxes on food and beverages in cinema halls. Cinema tickets will now be subject to a 5% GST rate. The panel has eliminated the distinction between skill-based and chance-based activities for taxation purposes. These decisions aim to strike a balance between taxing recreational activities and supporting the gaming industry, while not prioritizing casinos over essential commodities.