• Notification Date: 24-09-2024
• Notification No: N/A

GST Council will deliberate on insurance premium taxation and online gaming

The GST Council meeting started on September 9 and was expected to discuss topics such as insurance premium taxation, Group of Ministers (GoM) proposals on rate rationalization, and status reports on online gaming.  

A committee consisting of central and state government tax officials will reportedly submit a report on the Goods and Services Tax (GST) on health insurance and reinsurance premiums and its impact on revenues.  

The Parliament has discussed the issue of insurance premium taxation with the opposition parties, who are seeking exemption from GST on health and life insurance. Even Transport Minister Nitin Gadkari has reportedly written to Niramala Sitharaman on the issue. 

The Finance Minister, who chairpersons the GST Council, which consists of state ministers, is reported to be discussing reducing the tax burden on health insurance from the current 18% and exempting certain categories of people, such as senior citizens. 

On the issue of online gaming, the Centre and state tax authorities are expected to submit a "status report" to the GST Council covering GST revenues from the online gaming sector before and after October 1, 2023.  

According to reports, the GST Council in its August 2023 GST meeting clarified that online gaming platforms will have to pay 28 percent tax, and the Central GST Act was subsequently amended to clarify this provision. From October 1, 2023, 28 percent GST will be levied on entry-level bets on online gaming platforms and casinos. Previously, many online gaming platforms were reluctant to pay 28 percent due to different tax rates for games of skill and games of chance. Offshore gaming platforms will also have to register with the GST authorities and pay tax, and non-compliance will lead to the government blocking these sites, according to ET.  

The Council then decided to review the tax on the online gaming sector six months after its implementation.  

Finance Minister Nirmala Sitharaman, while replying to a debate on the Finance Bill, said 75 percent of the GST collected would go to the states and reportedly asked the opposition MPs to submit suggestions to the GST Council.  

Impact of the changes in Goods and Services Tax.  

Changes in the GST rates of health insurance premiums could either implicate higher premiums or lower premiums for the consumer. For example, if the rate of GST on insurance premiums increases, that means higher premiums for the consumers, which would dissuade the few who were already hesitant to invest in insurance products. A decrease in the rate of GST on insurance premiums would therefore mean lower premiums, making it more affordable, thus increasing policyholders.   

Currently, online gaming has emerged as a significant sector, with millions of consumers worldwide gulping different types of digital entertainment. Again, a lot of debates have been going on regarding the issue of taxation in the case of online gaming. To that effect, the government levied 28% GST on entry-level bets that people make through online gaming platforms and casinos from last October. The tax was recommended by the GST Council at its GST meeting in August 2023 and had come into the Central GST Act, bringing clarity to the provisions, the report stated. The GST Council is therefore expected to discuss whether GST should be levied on gross gaming turnover or net gaming turnover. This would be an extremely important differentiation, as the power industry is subject to a huge array of central and state taxes. 

With gross gaming revenues, this may increase tax liabilities for online gaming operators. As a result, this is going to add costs for gamblers because the operators might pass on the increased tax burden into costs. On the other hand, the net gaming revenues may increase low costs in operators and, hence, more competitive pricing with a better user experience.  

Impact to the industry and consumers  

This decision of the GST Council would then have a dual effect: both the insurance and online gaming industries would perceive this. In the case of the insurance company, a uniform rate might facilitate operations as well as reduce compliance costs in general, although an unusually high rate would weigh on profitability too.  

The tax regime will, therefore, determine the cost of operations and profitability for the online gaming operators. A more attractive tax regime will invite more investment in the sector, which in turn will lead to more effective services and more jobs. However, an unfavorable tax regime might thus prevent growth and attract more operators seeking more tax-friendly countries.  

Consumers, in addition, keenly await the outcome of this GST meeting as it would directly affect their wallet. Health insurance premiums may vary if GST rates change. For online gamers, the tax system may affect the cost of playing and the selection of games available.  

It is therefore notable that the upcoming GST Council meeting will mark a critical inflection point for the health insurance and online gaming industries. The decisions taken will shape the future of these industries and directly impact consumers. In its deliberations, the Council will have to balance the need to generate revenue with the need to promote growth and consumer welfare. Its outcome will be closely watched by all stakeholders as it will set the future direction of taxation in these dynamic industries.