Several Indian gambling operators are seeking temporary relief from the country’s controversial 28% Goods and Services Tax (GST).

At least two companies have filed “interlocutory applications” with the Supreme Court (pictured) to stop them being harassed by the tax office until a case challenging the GST rate has completed, according to local business newspaper The Economic Times.

The October 2023 turnover tax’s hike to 28%, from a previous 18% rate, has been seen by some observers as a significant roadblock to the country’s burgeoning online gaming industry after several years of growth.

Despite hopes the government would reduce the tax in the face of industry warnings, the finance minister announced in September the rate would remain in place.

It comes as the GST department has reportedly begun to file adjudication notices to proceed on enforcing the 28% tax demand for past years.

The matter is reaching a critical point due to a looming February deadline, which would see many of the previous tax notices become invalid under Indian law.

Companies face the prospect of paying the 28% turnover from a five-year period from 2018 after the tax office ruled they should be liable for the increase rate retroactively.

However, observers have warned that payment of these tax obligations would mean end of many Indian gaming businesses.  

Last week, the industry’s principal lobbying group, which is also rumoured to be preparing to file in the Supreme Court, sent a draft interim application with members for their comments, according to two people who spoke to the newspaper.

Supreme Court to examine GST issue

The case currently proceeding through the court will examine whether the GST must be imposed on the full deposit by players and whether it can be foisted for the pre-October 2023 period.

The court will also rule on whether online games like rummy, poker and fantasy sports are games of chance or skill.

Due to the country’s 1867 Public Gaming Act’s prohibition on games of chance, a ruling here could effectively ban huge swathes of India’s online gambling sector.

While the skill-based gaming sector has been highlighted by the government as a “Sunrise Sector” for future growth, concerns have been raised for years that the GST risks smothering it in its crib.

Ernst & Young and US-India Strategic Partnership Forum (USISPF) penned a joint report in June 2023 analysing the tax’s impact on the sector.

The report said: “Despite its promising trajectory, the industry currently stands at a critical juncture faced with challenges exacerbated by the recent GST amendments and regulatory ambiguities.

“The impact of the amendment is evident from the declining active user base, widespread consolidation, closures, layoffs, and a growing trend of companies seeking operations abroad.”