The immediate reaction of many to the seemingly absurd GST demand of nearly Rs 17,000 crore on Delta Corp, the casino, online gaming and cruise ship operator, was one of disbelief and astonishment. It just seemed absurd that a company the size of Delta Corp could be asked to pay so much money in taxes. We’ll try to make sense of these numbers, but first let’s look at the information Delta Corp shared in its filing with the exchanges.
THE SMALL FEATURES
A careful examination of the text of the notification reveals two important aspects. The first, the request concerns “for the period from July 2017 to March 2022”. And the second is that the “amount claimed in the DG’s opinion is among others based on the gross stake value of all games played in casinos during the relevant period. The demand for GST on the gross value of bets, rather than gross gaming revenue, has been an issue for the industry and various representations have already been made to the government at an industry level on this matter.”
In this context, it is worth noting that the GST Council has approved the levy of 28 per cent GST on the gross value of bets from October only this year. This should be reviewed after six months. It would therefore seem logical to assume that if a rule comes into force from a certain date, it cannot necessarily be in force from an earlier date. Therefore, a GST claim on the gross value of bets for an earlier period is very likely to be challenged.
However, what is not clear is how GST was calculated and paid by Delta Corp during the above period. Was it paid out of gross gaming revenue (GRP), which is calculated by deducting winnings from the value of the bet? Or only on the platform fees charged? And does the calculation of this GNP differ from the way the GST authorities calculate this figure?
Such issues could still give rise to some claims for dues, even if the gross bet value levy is rejected.
MAKE SENSE OF THE GST NUMBER
Can a company with a revenue of Rs 1,000 crore per annum and a balance sheet of Rs 2,500 crore possibly be liable for GST dues of Rs 16,823 crore? While this seems like a number pulled out of someone’s hat, there is a logical explanation as to why the two may not be inconsistent. For this, you need to understand how GST is levied and how it relates to the gaming operator’s revenue.
|DELTA CORP.||GST NOTICE TO DELTA CORP|
|Key financial data||EX23||GST x||GST Requests||Amount|
|Income||Rs 1,067 million||15.8||Opinion of the DG||Rs 11,140 million|
|Casino games||Rs 1,011 million||16.6||TPS Intelligence, Hyd (Deltin, Sikkim)||Rs 628 million|
|EBITDA||Rs 397 million||42.4||TPS Intelligence, Hyd (High Street Cruises)||Rs 3,290 million|
|TAP||Rs 261 million||64.5||GST Intelligence, Hyd (Delta Pleasure Cruise)||Rs 1,765 million|
|Net value||Rs 2,221 million||7.6||Rs 16,823 million|
|Balance sheet||Rs 2,547 million||6.6|
The GST levy as proposed must relate to the amount placed by an individual with a gaming platform for betting. So, if you decide to bet Rs 10,000, at the new rate of 28% from October 1, you will have to pay Rs 2,800 as GST. This GST will be collected by the operator and deposited with the authorities. This has nothing to do with operator revenue and is not intended to come from operator revenue, but collected directly from people betting.
In most cases, casino and online gaming platform operators will charge a platform fee which is only a small percentage of the bet amount and which constitutes their revenue. Therefore, the amount charged for GST may seem extraordinarily high relative to an operator’s revenue or resources, but that is because it bears no relation to the size of the operator. The amount of GST must be linked to the value of bets made on the platform, and this figure is likely to be much higher.
The problem is that if an operator has not already charged GST on the bet amount, how will they now get that back? No one betting on the platform will now pay GST on a past transaction.
This is where this whole issue gets complicated. The most logical outcome is that the taxman and operators reach an agreement to right old wrongs or forgo past sins and move to the new regime, which more clearly defines how GST should be collected.
We’re still hearing about the GST issue, with a review due six months after the new regime comes into force. And in the meantime, investors should be wary of investing in the sector as the new GST levy on volumes is also a conundrum.