GST Council may Propose Block on Gaming Services that Flout Tax Laws

August 1, 2023 | Tax

New Delhi, India (July 31, 20023) — On Wednesday, the Council will consider necessary changes in laws to enforce its July 11 decisions, The HindustanTimes reported the second official said.

The Goods and Services Tax (GST) Council is likely to propose a block on online gaming services that do not comply with Indian tax laws, people aware of discussions likely to be on the table at the next meeting on Wednesday said, amid rising concerns over the use of digital services for money laundering and tax evasion.

The GST Council, made up of all state finance ministers and headed by the Union finance minister, on July 11 levied a 28% tax rate on online gaming, which officials said was done since the activity was treated as a luxury, and not essential, thereby earning the highest slab.

Concerns have been raised that online gaming platforms may evade GST by operating from overseas. But, in such cases tax administration will deduct GST from payment sources, one official said. “The 28% GST on face value of bets, instead of gross gaming revenue (GGR), makes tax administration very simple. Tax can be deducted from payment sources in case of an overseas platforms,” he said. GST on GGR value — total bets minus total wins – will complicate the system. “It is difficult to monitor, particularly in cases of overseas players, and prone to manipulations,” he added.

On Wednesday, the Council will consider necessary changes in laws to enforce its July 11 decisions, The HindustanTimes reported the second official said.

Briefing media on July 11, Council’s chairperson Sitharaman said that “suitable amendments” would be made in laws to include online gaming and horse racing in schedule III as taxable actionable claims.

“It is also likely that the Council may approve tweaking of laws so that overseas online gaming entities cannot evade GST if payment is made from India. Tax authorities could also be empowered to block overseas entities for noncompliance,” the official said.

While the Council’s mandate is limited to taxation, tweaks to online gaming regulations and its enforcement falls under the Ministry of Electronics and Information Technology (MeitY) along with ministries of home and finance.

The government is on the job,” he said citing a recent parliamentary committee report that proposed to set up a centralised Cyber Protection Authority (CPA).

In an interaction with the panel, the finance ministry highlighted four major trends in cybercrime – one related to using cryptocurrencies, the other is international online betting platforms for money laundering and terror financing, the official said. The other two are lending apps and mule accounts. Mule accounts are bank accounts of innocent victims used by unscrupulous elements to launder money, he added.

“While mule accounts are mostly in India, other three are often offshore entities. Agencies have flagged concerns about several crypto and online gaming sites,” he said.

According to the ‘cyber security and rising incidence of cyber/white collar crimes’ report release by the parliamentary panel on July 27, agencies have filed reports linked to suspicious transactions of multiple UPI identities linked to certain gaming websites. “Prima facie, it appeared that these websites are registered overseas in Curacao, Malta and Cyprus etc. Though the websites itself were registered in foreign countries, but all of them were linked to Indian bank accounts,” it said. Unified Payments Interface (UPI) is India’s indigenously developed instant digital payment system.

The analysis of financial transactions revealed that “the network of foreign registered websites linked to Indian bank accounts appear to be engaged in fraudulent means of collecting money from individuals through false inducements” as collected funds were not distributed back to those who invested and were instead diverted to bank accounts of few individuals, including overseas entities, it said. Often such funds were used in purchasing cryptocurrencies, it added.

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SOURCE: HindustanTimes.

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