On 29 September, finance ministry's revenue department notified new tax rate via an amendment to Central Goods and Services Tax Act, 2017. The amendment comes after 51st GST Council meet, on 2 August, recommended a tax rate of 28% on gross revenue of online gaming firms.

Industry stakeholders, however, are concerned about the notification, with two senior taxation lawyers from top law firms stating that it is "unprecedented" for the Centre to notify an amendment to the central GST regime—before all states complete the adoption of the tax rate.

"Most states are likely to pass their respective State GST law amendments for the new GST regime for online gaming in the coming month. But, the nature of this unilateral interpretation by the Centre raises graver questions on the greater precedent that it sets for overall GST regime. Given that the entire GST framework hinges on the states and the centre exercising their law making powers 'simultaneously', this unilateral move by the Centre could potentially lend precedent to states taking unilateral tax decisions too," said Sudipta Bhattacharjee, partner at law firm Khaitan & Co.

Jay Sayta, a technology and gaming lawyer, said the notification can "open the floodgates to more complications of implementation of GST across states and the Centre, going forward."

Industry body All India Gaming Federation, which counts the likes of Gameskraft, Nazara, Mobile Premier League and Paytm First among its members, on Saturday wrote a letter to Sanjay Malhotra, revenue secretary at finance ministry, highlighting points mentioned above. It also sought answers to whether states may end up being penalized for failing to collect state GST—in states where new tax rate has not been notified. A copy of the letter was seen by Mint.

A senior official with knowledge of the matter, requesting anonymity, said most states are likely to bring out retrospective notifications of adopting the 28% tax rate on online gaming firms, and the Centre is informally conversing with states to ask firms, again informally, to collect taxes at new rate. A senior executive at a leading online gaming firm, who requested anonymity, agreed. "While this process may seem arbitrary, a tentative collection of the new tax regime could be the only way for us to simplify computation of overall tax liability for the year. We're also concerned that any anomaly in this could raise scrutiny and penalty claims," he said.

However, this retrospective tax may still retain operational complications. "For online gaming firms, this can pose serious interim operational challenges — in terms of determining which rate to tax their customers at. Especially in states that have not adopted the new law yet, this can be particularly confusing, since technically speaking, no one can collect tax that has not been formally brought into force by law yet," Bhattacharjee said

Queries sent by Mint to a Ministry of Finance spokesperson, and the Directorate General of GST Intelligence, did not receive responses until press time.

The letter to Malhotra by AIGF also said that informal notifications by the Centre would qualify as arbitrary.

Most stakeholders agree that the larger issue with the Centre's way of notifying GST on the sector is with the precedent it sets for future taxation issues, and in hindering the overall balance of implementation of singular tax regime across the country.

Mint reported on 26 September that the DGGI is in process of sending out retrospective GST claims as high as ₹1.5 lakh crore across the entire gaming industry, claiming real-money gaming firms to qualify under gambling. Multiple leading gaming firms are in process of receiving these notifications, which are expected to be rolled out by the end of the month.