India announces “face value” tax to heavy backlash

India’s finance ministry has indicated that there will be a change in its damaging goods and services tax (GST) making it applicable at a “full face-value” as opposed to gross gaming revenue (GGR).

A decision which has been met with backlash from several parties including operators and government officials alike.

Revenue Secretary Sanjay Malhotra has stated that the GST Council are set to clarify whether or not player account deposits or individual bets are to be taxed.

Operators disgruntled

Malhotra has acknowledged how this new system would in many ways double the taxation that is currently being applied to gaming operators stating:

“There are pros and cons both ways as to whether we tax it at the entry level itself or we tax each and every bet.”

Malhotra would then continue assuring that the operator’s concerns were taken into consideration:

“The taxation, as has been claimed by the gaming industries, becomes very high in case it is taxed at each and every bet. Well, that’s true. It’s a fact, it’s true. And that will certainly be taken into account when the final decision on this is taken.”

Return to GGR taxation out of the question

Malhotra did make abundantly clear that a return to sole taxation upon GGR or a lowering of the 28 per cent tax rate is not on the cards.

He would continue to affirm that a face-value tax will replace this, which would fail to account for numerous variables and adjustments.

Further to this Malhotra explained that this new taxation system may not be as harsh as has initially been feared. If this GST is applied to entry-level funds rather than a series of funds may seem a more reasonable approach.

Industry and intra-governmental pressures

Major foreign and domestic investors have already written to Prime Minister Narendra Modi, warning him that billions of dollars in gaming investment are currently being put in the balance.

Even stronger pressure is being mounted now, with an open letter from companies and peak groups across the Indian sector condemning the GST’s decision.

Numerous state officials have also dissented against state financial officials over this issue with a further disagreement brewing between central and state government ranks over the GST’s extreme decision.

They have pointed out another key factor seemingly overlooked by the council on the potentially disastrous effects that will be felt by smaller companies and start-ups hoping to expand with and within the sector.

Growth mitigation

Arvind P. Datar, a senior advocate in the Madras High Court has also weighed in on the matter levelling heavy criticism at the “excessive focus on revenue maximisation”.

He explained how the implementation of this taxation scheme shows a lack of understanding when it comes to economic growth making a decision that will effect employment, the maintenance of adequate infrastructure and even lower the yield achieved through taxation.

He stated:

“It is equally important for policymakers to examine the collateral consequences of oppressive rates of taxation. The resultant increase in employment and its overall impact on the economy is perhaps the most critical factor that needs to be considered at this juncture.”

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