Union FM Nirmala Sitharaman will chair the 51st meeting of the GST Council, through video conferencing, in New Delhi on August 2. (Image: Ministry of Finance)
52nd GST Council meeting: October 7 meeting expected to resolve legal operational challenges of implementation faced by states
52nd GST Council Meeting on October 7, 2023: The upcoming 52nd GST Council meeting, scheduled for October 7, 2023, in New Delhi, holds profound significance as it is expected to be a crucial meeting in dealing with several crucial agenda items such as taxation of crypto and NFT tokens, clarifications on ESOP, rate rationalization and review of progress made by individual states in implementing changes to the State Goods and Services Tax (SGST) Act.
During the previous 51st GST Council meeting on August 2, 2023, the GST Council announced critical recommendations in the online gaming sector to be implemented through substantive legislative changes to levy GST at the rate of 28 percent on deposits.
The recommendations required substantial legislative changes and changes regarding the definition of specified, enforceable claims; online game and other special valuation provisions contained in the CGST Act upon receipt of the property from the President on August 31, 2023.
A new tax regime was notified on September 29, 2023, which would come into effect from October 1, 2023, as discussed in the GST Council.
In light of the notified changes, 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 changes in the SGST legislation. A handful of states have yet to notify the changes to their respective state laws, which could pose operational hurdles in implementing the changes.
During the Council meeting, the concerns expressed by the states will be discussed. The Council should take into account the concerns of stakeholders for the interim period.
The interplay of the dual regime for the interim period will impact the payment of IGST and CGST. It is based on central notification and state tax on providing platform services. This aspect should be examined with appropriate modifications to address the special situation. As this deadline approached for the introduction of the new regime, the GST authorities issued show-cause notices to online gaming companies under the old regime, taxing the entry fee instead of the deposit.
We can expect that the GST Council will address the issue regarding taxability of claims relating to games of skill to provide certainty and avoid unnecessary litigation in the recent period.
The 52nd meeting of the GST Council will emphasize on reviewing the implementation of the law in all states as failure to incorporate the changes in state laws in such states may create a constitutional crisis in terms of tax and collection of GST as users. In case of inter-state supplies, the provisions of the IGST Act shall apply, duly notified. However, ambiguity arises in the collection of CGST and SGST as the current situation only provides for levy and collection of CGST but introduces an operational fallacy in the collection of SGST in states where the changes are yet to be implemented and notified.
The SGST laws currently only grant specific powers to the central government in case of exemption of goods and/or services. It will be interesting to witness the progression between the use of IGST on deposits and CGST/SGST on platform charges, along with the remedies that the central government will avail to implement this retrospectively at the ground level.
The tax regime was in an identical situation at the time when the Finance Act 2023 inserted a new provision 194BA into the Income Tax Act 1961, which came into force from April 1, 2023. The section obliges online gambling platforms to deduct income tax on the net . winnings to the user’s account. However, the method of calculating the net winning vide notification and guidelines for the implementation of the vide circular provision were not published until May 22, 2023. However, the CBDT addressed the issue of time lag between the implementation of the provisions and the rules through appropriate clarifications.
Similarly, for the smooth implementation of the GST provisions and a process-free regime, the GST Council can be expected to provide clarifications regarding the applicability of provisions in all states across the country, taxability of promotional schemes and incentives such as bonuses and other issues that threaten the online gaming industry.
The October 7 meeting is expected to resolve the legal operational challenges of implementation faced by states and pave the way for a smooth transition for online gaming platforms to the new GST regime.
-The author is Partner, Lakshmikumaran & Sridharan. Opinions expressed are personal.
