GST shocker for MUVs, online gaming, casinos

All kinds of multi-utility vehicles (MUVs) with length exceeding 4 metres, engine capacity of over 1,500cc, and more than 170mm ground clearance will become costlier, the 50th Goods and Services Tax Council decided on Tuesday, while clarifying that online games would attract 28% GST on their “full face value” even as it provided tax relief for specific cancer drugs, and food and beverages served at multiplexes.

Representational image.
Representational image.

Briefing the media after the council’s meeting, its chairperson and Union finance minister Nirmala Sitharaman said the scope of sports utility vehicles (SUVs) has been expanded to include MUVs. As per the decision, like SUVs, all kinds of MUVs or crossover utility vehicles (both uniquely Indian categories) would attract 22% compensation cess. Earlier, the levy on MUVs was 20%. “Ground clearance” would mean ground clearance in un-laden condition, she said, adding that sedans have not been clubbed in this category of highest cess rate on cars as proposed by Punjab and Tamil Nadu. HT reported this on Thursday.

The council on Tuesday also settled a long-pending matter related to online gaming and decided to uniformly levy 28% GST on all three – casino, horse racing and online gaming – “on the face value of the chips purchased in the case of casinos, on the full value of the bets placed with bookmaker/totalisator in the case of horse racing and on the full value of the bets placed in case of the online gaming”, Sitharaman said. The council arrived at a consensus on Tuesday after recommendations of a Group of Minister (GoM) on the matter remained inconclusive.

Initially, the GoM – constituted to look into the issues related to taxation on casinos, horse racing and online gaming – had submitted its first report in June 2022 to the 47th GST council meeting. The council asked the GoM to look at all issues again. The GoM, in its second report, recommended that “since no consensus could be reached on whether the activities of online gaming, horse racing and casinos should be taxed at 28% on the full face value of bets placed or on the GGR [Gross Gaming Revenue]”, the council may decide the matter, a finance ministry statement said.

Speaking about the matter after the FM announced the decision on Tuesday, GoM chairman and Meghalaya chief minister Conrad K Sangma said: “There were divergent views. After much deliberations, the GST council took a [final] decision in the spirit of consensus.” As a convention, barring one occasion, all decisions of the council are unanimous since its inception in July 2017.

The CM said the council had to take a balanced view between impact on the industry and social concerns, besides ease of tax administration. Some members said that it was an important source of revenue for smaller states such as Goa, and a high tax rate would impact tourism, besides it would force these industries to shift out, he said. While briefing the media, revenue secretary Sanjay Malhotra said the sector always attracted 28% tax on face value and the council’s decision on Tuesday is more of a clarification. He said the government would continue to contest all legal disputes of the past on this matter.

Pratik Jain, partner, Price Waterhouse & Co LLP, said: “The decision to levy 28% on gross value in case of online gaming and casinos is perhaps not what the industry was hoping for. While it has been indicated that this proposal is ‘clarificatory’ in nature, it would have been better to make it prospective to put the past dispute to rest.”

“The GST council’s decision to levy 28% GST on total face value on online gaming will corner the gaming industry in a big way. The overall operations will not be feasible. The high tax burden will completely restrict the cash flow, limiting a company’s ability to invest in research, innovation, expansion or survival,” said Mitesh Gangar, co-founder & director, PlayerzPot.

The higher burden will also put a blocker on India’s massive gaming industry and deter a new player from entering the industry, he said. “The rising gaming economy will take a big hit and trigger economic stress, restrict job creation and curtail economic growth within the sector,” he added.

In a move to provide relief, the council decided to exempt integrated GST or IGST (levied on import of goods) on Dinutuximab (Quarziba) medicine when imported for personal use. It has also been decided to exempt IGST on medicines and food for special medical purposes (FSMP) used in the treatment of rare diseases enlisted under the National Policy for Rare Diseases, 2021, Sitharaman said. Besides personal use, the exemption is also extended to FSMP when imported by centres of excellence for rare diseases or any person or institution on recommendation of any of the listed centres of excellence.

In order to encourage private entrepreneurship, satellite launch services supplied by private organisations have been exempted from GST in line with such exemptions available to ISRO, Antrix Corporation Ltd and New Space India Ltd (NSIL), the finance minister said.

The council also reduced GST rates on several goods. GST on uncooked/unfried snack pelletshas been reduced from 18% to 5%, tax on imitation zari thread or yarn has been reduced from 12% to 5% and GST rate on LD slag [waste produced during steel manufacture] was slashed from 18% to 5% to encourage better utilisation of this product and for protection of the environment, she said.

“The GST council has decided to bring the GST compensation cess on MUVs and SUVs on a par. This means that all utility vehicles will attract a GST of 28% and a compensation cess of 22%. This will bring certainty to the tax treatment of these vehicles, but it will also lead to higher costs for consumers. The increased cost can lead to increased pricing of taxis/ rent-a-cab for the common masses where utility vehicles are being used for travel,” said Saurabh Agarwal, tax partner, EY.

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