Following Finance Minister Nirmala Sitharaman’s announcement of the new 28 percent tax slab for gaming, there has been much confusion about its scope. Esports businesses are keen to clarify that the higher goods and services tax (GST) slab applies only to real-money gaming, while their primary income comes from brand sponsorships and media revenue.
In fact, experts predict that esports could be the future of gaming in the country, especially with the government’s recognition and its official debut as a medal sport at the 19th Asian Games, where India will participate in four categories.
“It is imperative to first understand that the 28 percent GST is going to be applicable to the i-gaming sector, including RMG (real-money gaming), fantasy sports, teen patti (a card game), rummy and poker which fall under gambling or betting in the rest of the world. This GST is neither applicable nor will it have any impact on the video-gaming industry or the esports industry,” said Lokesh Suji, director, Esports Federation of India and vice president of the Asian Esports Federation (AESF).
In December 2022, President Droupadi Murmu advocated for the inclusion of esports in multi-sports events and esports remains taxed at 18 percent.
The distinction between a game of skill and game of chance has long been debated in real-money games. Advocates argue that real-money gaming relies on practice and skills, not just luck, like betting. Regarding i-gaming (which includes gambling and betting on competitions), Suji asserts that these distinctions are irrelevant, as they do not apply in the esports ecosystem.
In April, the government made amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, to lay out a comprehensive framework for the online gaming ecosystem.
According to Vinod Tiwari, president of Esports Federation of India and acting director general of the Olympic Council of Asia, instead of using the umbrella term ‘online gaming’, the GST Council should have ideally used the more specific term “i-gaming’ which is known worldwide, or even ‘online real-money game’ which is defined in The Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules to avoid the confusion.
Esports is on the rise in India. As per an EY report, the industry is expected to post a compound annual growth rate (CAGR) of 46 percent and see turnover grow over fourfold from Rs 250 crore in 2021 to Rs 1,100 crore by 2025. The prize pool is expected to reach Rs 100 crore by 2025.
“Unlike online gaming, esports is defined by online games of skill that are played in tournaments where different teams or individual players compete against each other to win the championship, league or title like physical sports,” said the EY report.
As per the same report, the number of people playing esports is expected to witness a CAGR of 78 percent by 2025 to reach 1.5 million players and 250,000 teams. The growth will be propelled by the increase in prize money, more games, localisation and regional adaptation, and growth of smartphone, laptop and broadband infrastructure.
“As esports tournaments grow more competitive, they draw more viewership and support from players and the audience. Presently there are over 14 esports broadcast platforms; it is expected to cross 20 platforms by 2025. While current viewership is 17 million, by 2025 over 85 million unique viewers will watch esports tournaments in the country, comprising around 10% of global esports viewership,” the EY report highlighted.
Talking of prize pools and revenues, there should be focus on the fact that esports works on a play-to-win model.
Increasing brand interest in the space alongside media rights is the primary bread earner for companies in the business of esports.
Sidharth Kedia, CEO, Nodwin Gaming, explained how. Nodwin’s business model, for instance, is anchored on brand sponsorships and media revenue.
“We are already paying GST on all our revenue streams like any media company in India. It is important to note that we do not impose any fees on esports organisations or players to participate in its tournaments. As a result, we fall outside the scope of this specific tax system, making us exempt from its application,” he said.