Online gaming firm Nazara Technologies on Wednesday informed the stock exchanges the decision of the GST Council to levy a 28 per cent tax on online gaming will have little impact on revenues.
The company’s stocks still fell 2.58 per cent at the end of trade on the Bombay Stock Exchange.
“We would like to clarify that this tax, once implemented, will apply only to skill-based real money gaming segment of our business. The contribution of this segment to our overall consolidated revenues for the financial year FY23 was 5.2 per cent,” the company said.
“To the extent required, the company will proactively take steps to mitigate any potential impact to this segment of our business, and we anticipate minimal impact to our overall revenues,” the filing said.
Online gaming industry associations has said the 28 per cent tax on total entry amount including prize money will cause “irreversible damage”.
Revenue secretary Sanjay Malhotra however told CNBC TV 18 on Wednesday that the government’s understanding has always been a 28 per cent tax rate on the full value and not the gross gaming revenue.
“The GST Council’s recommendation obliterates the distinction between game of skill (online gaming) and game of chance (gambling), on both counts — tax rate of 28 per cent and the taxable value. Although some foreign jurisdictions are known to tax both types of games at the same rate of VAT/GST, in India with unequals being equated, we may witness a constitutional challenge being mounted in high courts,” said Ranjeet Mahtani, partner, Dhruva Advisors.
Relief for foreign firms
In a major relief to global companies, the GST Council has said that no tax will need to be paid if the overseas firm merely holds securities in the Indian subsidiary without actually providing any services itself. The clarification settles a vexed issue as most foreign companies directly invest in the shares of their subsidiaries.
“Clarifying that mere holding of securities of a subsidiary company by a holding company cannot be treated as a supply of services and, therefore, cannot be taxed under GST,” a finance ministry release said.
The clarification came amid GST officers sending notices to both Indian and foreign companies, demanding tax on share capital in their subsidiaries at 18 per cent rate.
“There still remains a lot of debate around the deemed supply provisions specifically for cross border transactions,” said Mahesh Jaising, partner, Deloitte India.
Rajat Mohan, senior partner, AMRG & Associates, said: “This much needed clarification will arrest wasteful litigation for thousands of conglomerates working in India.”
