Entrepreneurs in the gaming industry have penned an open letter to the government, expressing their concerns over the recent announcement by Finance Minister Nirmala Sitharaman to impose a 28% Goods and Services Tax (GST) on the sector. The letter, signed by approximately 130 entrepreneurs, highlights the industry’s distress following the GST Council’s recommendation to classify online skill gaming with betting and gambling.
One of the key issues raised in the letter is the proposal to levy GST on the full deposit value, a move that is anticipated to derail the industry’s growth trajectory. Moreover, the entrepreneurs emphasize the potential devastating implications for micro, small, and medium enterprises (MSMEs) and startups, which may lack the financial reserves to withstand such a substantial tax increase.
Additionally, they express concerns that the decision could inadvertently encourage the proliferation of illegal offshore gambling operators. The entrepreneurs call for a reevaluation of the GST announcement, urging the government to consider the industry’s unique characteristics and foster an environment conducive to its growth.
The letter highlights the size of the industry. It said, online skill gaming, with a $20 billion enterprise valuation, $2.5 billion in revenue, and $1 billion in annual taxes, is set to grow by 30% CAGR to reach $5 billion in revenue by 2025. The total number of Indian online gamers grew from 360 million in 2020 to over 420 million in 2023. India’s gaming industry attracted FDI of about $500 million between 2014 and 2020, and over $1.5 billion between January 2021 – June 2022. The industry currently supports lakhs of direct and indirect jobs, and these numbers will grow substantially in the next few years.
Highlights of the letter
—Taxing online gaming to the point of unviability, ‘contradicts Digital India vision’
– Will result in 400% – 500% increase in GST burden,
which the industry will have to pass on to consumers
– Any negative impact on the industry will lead to companies making cuts, resulting in significant job losses
– Will increase cost of each game, significantly for users
– Imposition of GST on full value would debilitate potential investors from considering online gaming sector a viable investment destination
—Taxing online gaming to the point of unviability, ‘contradicts Digital India vision’
– Will result in 400% – 500% increase in GST burden,
which the industry will have to pass on to consumers
– Any negative impact on the industry will lead to companies making cuts, resulting in significant job losses
– Will increase cost of each game, significantly for users
– Imposition of GST on full value would debilitate potential investors from considering online gaming sector a viable investment destination