Online gambling is a booming industry in USA, where millions of people enjoy playing games of skill and chance on various platforms. However, the legal and tax status of online gambling in USA is not clear-cut, as different states have different laws and rates for it. Recently, the GST Council decided to impose a uniform 28% tax on online gaming, casinos, and horse racing, which has raised several questions and concerns among the stakeholders of this industry.
In this article, we will explore the implications of this decision for both the players and the operators of online gambling platforms.
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In USA, millions of players play games of skills and chance on numerous platforms, making online gambling a popular and lucrative hobby. Casinos and internet gambling are permitted in some states, including Goa, Daman, and Sikkim, but they are illegal in others, like Telangana, Andhra Pradesh, and Tamil Nadu.
The situation is murky in most states since existing laws are obsolete and do not address the problem of internet gambling. Furthermore, the courts have issued contradictory rulings on whether online games are skill or chance games, which impacts their taxability under the Goods and Services Tax (GST) system. The GST Council has voted to apply a standard 28% tax on online gambling, casinos, and horse racing, which has sparked various issues and concerns among industry stakeholders. However, the legality of online casinos in USA is unclear because no federal laws specifically ban or regulate it. Instead, each state has the right to enact its own rules governing gaming activities inside its borders.
The GST is a comprehensive indirect tax that subsumes various central and state taxes on goods and services. It is levied at four rates: 5%, 12%, 18%, and 28%, depending on the nature and category of the goods and services. The GST Council, which is the apex body for decision-making on GST matters, comprises representatives from the central and state governments.
The GST Council resolved to impose a 28% GST on online gambling, casinos, and horse racing on the full face value of bets or wagers placed by participants during its 50th meeting on July 11, 2023. This implies that the tax will be computed on the total sum paid by the participants to participate in these activities, regardless of whether they win or lose. For example, if a player spends Rs. 1000 to play online rummy or poker, he or she must pay Rs. 280 in GST to the government, regardless of whether the player loses the entire amount or wins more. Similarly, if a player pays Rs. 1000 to buy casino chips or place a bet on a horse race, he or she will have to pay Rs. 280 as GST upfront.
This decision was made to offer uniformity and clarity to the taxes of these activities across the country, as different states have varied rules and rates for them. Moreover, the government aims to curb tax evasion and increase its revenue from this sector, which is estimated to be worth over Rs. 10,000 crore annually. The government also argues that these activities are akin to betting and gambling, which are considered vices and social evils that should be discouraged and taxed heavily.
The imposition of the 28% GST on online gaming, casinos, and horse racing has been met with strong opposition and criticism from both the players and the operators of these platforms. They claim that this decision will adversely impact both the demand and supply sides of this industry.
On the demand side, players say that the 28% GST is excessive and unjust, as it lowers their chances of winning and increases their losses. They further argue that online games are not games of chance, but rather games of skill that demand mental talents and techniques, and hence should not be considered gambling or betting. They are concerned that the levy may dissuade people from playing online games, forcing them to seek alternative sources of amusement or illicit sites that do not impose a tax.
On the supply side, operators of online gambling platforms and casinos claim that the 28% GST will harm their business sustainability and profitability by increasing operational expenses and decreasing profits. They also argue that the tax would create an unequal playing field for them in comparison to rivals in other countries that do not levy as high taxes or have more favorable legislation for online gambling. They warn that this tax would push numerous players and operators out of USA, resulting in income, employment, innovation, and investment losses for the country.
The 28% GST on internet gambling, casinos, and horse racing is a sensitive subject in USA that has aroused disagreement among numerous parties. While the government says that this tax would provide consistency, clarity, openness, and income to the government, the players and operators argue that it will hurt their interests. The long-term impact of this tax on the growth and development of this business remains to be seen.
