The government’s decision to impose a 28 percent tax on online gaming is expected to have adverse effects on the industry, according to stakeholders. Experts argue that this move will inadvertently promote the rise of grey market operators and hinder the growth of the sector.
This move raises concerns about the potential negative consequences and calls into question the government’s approach to supporting and nurturing the online gaming industry.
The 50th GST Council meeting agreed to tax online gaming at the rate of 28 percent on full face value amount at par with horse racing and casino
L.Badri Narayan, executive partner at Lakshmikumaran & Sridharan Attorneys says this is an unexpected development for the industry in the light of the positive steps in TDS and self-regulatory regime.
Narayan explains how the tax structure would work out for the industry. “After taxing 100 percent of the winning amount under new TDS regime, to tax full value of entry fee will have a significant impact on prize pool and incentive for players. The differential treatment for games of chance like casino and games of skill played in online gaming is arbitrary and will face legal challenges. This decision will have an adverse impact on the nascent sector and future investments,” he said.
“As highlighted in GST Council, this will aid in the further development of grey market operators and dark web affecting customer interest. The approach of the GST Council is a deviation from internationally accepted taxation practice,” Narayan added.
During the post-GST council meeting, Finance Minister Nirmala Sitharaman reaffirmed the government’s commitment to not terminate any industry. However, she emphasized the importance of maintaining appropriate tax rates for different sectors to avoid conveying a misleading message to the people. Lowering the tax rates on industries like e-gaming to the level of essential goods was deemed undesirable to prevent any potential misinterpretation of the government’s priorities.
When asked about putting games of skill and games of chance all under one tax umbrella, Sitharaman clarified that the focus is not on the nature of the game itself but rather on the value it generates for taxation purposes.
Gaming federations are calling this an unfortunate decision.
Malay Kumar Shukla, Secretary, E-Gaming Federation said a 28 percent tax on full face value will lead to a nearly 1000 percent increase in taxation and prove catastrophic for the industry.
“A tax burden where taxes exceed revenues will not only make the online gaming industry unviable but also boost black-market operators at the expense of legitimate tax-paying players, further undermining the industry’s image and capacity to survive,” he said.
Roland Landers, CEO at the All India Gaming Federation shared Shukla’s concerns.
“This decision will wipe out the entire Indian gaming industry and lead to lakhs of job losses and the only people benefitting from this will be anti-national illegal offshore platforms.” Said Landers.
Businesses operating in this sector are deeply concerned about potential revenue loss, job cuts, and the migration of their customer base to offshore platforms.
“This decision does not take into account the pleas of the industry, global precedents, and even counters the favourable regulatory environment being built up for online gaming in recent months. Businesses have a legitimate concern that this move will push users towards illegitimate betting and gambling operators that don’t follow the laws of the land,” said Siddharth Sharma, SVP, business strategy at internet based technology and gaming company, Head Digital Works (A23).
Gaurav Kapoor, CFO at Baazi Games said the decision will further negate the Prime Minister’s vision of Digital India and making India the global gaming hub.
“We urge the government to re-evaluate the decision to make it in line with the international practice of taxing the Gross Gaming Revenue of the Online Gaming Intermediaries (OGIs),” Kapoor said.
In the Gross Gaming Revenue Tax Model, the operator is responsible for paying taxes based on the entry amount, excluding the portion allocated to the prize pool. To put it simply, the operator is liable to pay taxes only on the value attributed to their platform fee.