52nd GST Council Meeting October 7, 2023: The upcoming 52nd GST Council Meeting, scheduled for October 7, 2023, in New Delhi, holds profound significance as it is anticipated to be a pivotal meeting in addressing various critical agenda items such as taxation of crypto and NFT tokens, clarifications on ESOP, rate rationalisation and evaluation of the progress made by individual states in implementing amendments to the State Goods and Services Tax (SGST) law.
During the preceding 51st GST Council meeting held on August 2, 2023, the GST Council announced critical recommendations in the online gaming sector to be implemented through substantive legislative amendments to levy GST at the rate of 28 per cent on deposits.
The recommendations required substantive changes in the law and amendments with regard to definition of specified actionable claims; online game, and other special valuation provisions which were incorporated in the CGST Act upon receiving the President’s asset on August 31, 2023.
A new taxation regime was notified on September 29, 2023, to be implemented with effect from October 1, 2023, as discussed in the GST council.
In light of the notified amendments, the 52nd GST Council Meeting to be held on October 7,2023 is expected to review the developments made by states in implementing the legislative amendments in the SGST legislations. A handful of states are yet to notify the amendments in their respective state laws, which could create operational hurdles in implementation of the amendments.
The Council meeting shall address the concerns raised by the States. The Council needs to address the concerns of the stakeholders for the intervening period.
The interplay of dual regime for the intervening period will have an impact on payment of IGST and CGST. It’s based on central notification and state tax on supply of platform services. This aspect needs to be examined with suitable amendments to remedy the peculiar situation. As this deadline loomed for introduction of the new regime, GST authorities have issued show-cause notices to online gaming companies under the old regime, taxing the entry fee instead of deposit.
We can expect the GST Council to address the issue in relation to taxability of actionable claims in relation to game of skill to bring certainty and avoid unnecessary litigation for the past period.
The 52nd GST Council Meeting shall lay emphasis on the review of the implementation of law in all the states as failure to incorporate the amendments in the state laws may create a constitutional crisis in such states on the levy and collection of GST qua users. In cases of inter-state supplies, the provisions of the IGST Act shall apply which have been duly notified. However, there arises ambiguity in the collection of CGST and SGST as the current situation only provides for levy and collection of CGST but brings in an operational fallacy in the collection of SGST in states where the amendments are yet to be introduced and notified.
The SGST laws currently grant specific powers to the Central Government only in case of exemption of goods and/or services. It shall be interesting to witness the playout between the utilisation of IGST on deposits and CGST/ SGST on the platform fee along with legal remedies that the Central Government shall resort to for the implementation of the same retrospectively on the ground level.
The taxation regime saw an identical situation at the time when the Finance Act 2023 inserted a new provision 194BA in the Income-tax Act, 1961 which came into effect from 1st April 2023. The section mandates online gaming platforms to deduct income tax on the net winnings in the user’s account. However, the manner of computation of net winning vide notification and guidelines for implementation of the provision vide circular was issued only on 22 May 2023. The CBDT however addressed the issue of time lag between the implementation of provisions and the rules through appropriate clarifications.
Similarly, for the smooth implementation of the GST provisions and a litigation free regime, the GST Council can be expected to issue clarifications with regard to applicability of provisions in all states across the country, taxability of promotional schemes and incentives such as bonus, and other issues looming over the online gaming industry.
The October 7th meeting is anticipated to resolve the legal operational challenges of implementation faced by states and pave the way for a smooth transition for online gaming platforms into the new GST regime.
-The author is Partner, Lakshmikumaran & Sridharan. Views expressed are personal.