How Will New GST Rules Impact The Online Gaming, Auto And Cinema Industries| Explained

The Goods and Tax Services (GST) Council had announced that a 28% GST would be levied on online games and casinos. Industry leaders warn that this decision can drive online players towards illegal betting platforms, which can lead to losses and reduction in revenue for the government.

Leaders also believe that the conducive tax of 18% would have been more reasonable for growth and sustainability for the online gaming industry. However, Union Finance Minister Nirmala Sitharaman clarified that the decision taken was not intended to kill the industry but considering the "moral question" that it cannot be taxed at par with essential commodities.

Aaditya Shah, COO of IndiaPlays, was quoted as saying by Business Today, that this higher tax burden can limit the cashflows of the companies, which can further lead to inability of the companies to further invest in innovation, research and development. Shah further stressed that skill-based games should be treated differently than online betting games.

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According to experts, as cited by a Business Today report, the gaming industry has created over 2,00,000 jobs and this decision also undermines the growth of the startup ecosystem in India.

The online gaming industry leaders further urge the council to reconsider its decision. All India Gaming Federation (AIGF), which represents companies like Nazara, GamesKraft, Zupee and Winzo, said the decision by the council is unconstitutional, irrational, and egregious.

"The decision of the GST council to impose a 28 per cent tax will have a significant impact on the online gaming industry, which unfortunately includes the Esports community. While we understand that the government needs to impose such measures on casinos, horse racing, and gambling, the higher tax rate is not justified for the competitive gaming community." said Sagar Nair, Co-founder, and CEO of Qlan, the Gamers' Social Network.

Soham Thacker, founder CEO at Gamerji said, "Over the last 5 years, the gaming industry has been booming in India, but this move is likely to slow down the growth as the impact on RMG companies is more severe. Up until now, 18% GST was applicable only on the gaming fee which was paid by the companies but the 28% is now applicable on the entire pool of money which is going to impact the winnings and thus the user journey. Already, there is 30% TDS applicable on the winnings. So net to net, for RMG this move will have a setback on their business and user base."

GST on Auto

The GST Council had further announced that the definition of an SUV will include only the length (4 metres and above), engine capacity (1,500 cc and more), and ground clearance (unladen ground clearance of 170 mm and more).

All MUVs, SUVs, and XUVs will now attract a 22% compensation cess on top of the existing 28% GST. As per a report by Financial Express, the change means that vehicles of companies like Maruti Suzuki Ertiga, Grand Vitara, Toyota Hyryder, Maruti Suzuki Invicto, Toyota Hycross, Kia Carens, Seltos, Creta, and many others, will become more expensive.

Auto industry experts believe that the tweak in definition announced by the council will provide clarity on taxation structure for utility vehicles, which will ensure that the rate entry is more precise and has a room for interpretation.

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GST on food and beverages in Cinema Halls

The council also decided to reduce the GST levied on food and beverages served in cinema halls from 18% to 5%, which is equivalent to the tax levied in hotels and restaurants.

If you buy a cinema ticket and food at the same time, the government will consider that as a single purchase and will be taxed on the entire purchase at the rate of the ticket, as it will be considered a "composite supply". 

According to a PTI report, F&B (food & beverages) are an important source of earnings for the cinema exhibition industry and the multiplexes earn up to 35% of their revenues from this segment.

"The entire cinema industry welcomes the clarification issued by the GST Council today that food and beverages sold at the cinemas will get covered under the definition of 'restaurant service' and would be liable to GST @5 per cent (without availment of input tax credit)," Nitin Sood, CFO at PVR INOX, was quoted as saying by news agency PTI.

He further said, “The above clarification will help resolve the industry-wide issue for the sector which includes more than 9,000 cinemas across the country in avoiding disputes/ litigation from a GST standpoint, giving tax certainty and help in revival of the theatre business post-pandemic.”

Karan Taurani, SVP of Elara Capital, believes that this decision will have zero impact from the financial perspective but from a litigation perspective, there is a relief.