December 3, 2023

Online gaming industry stakeholders expressed strong opposition to the recent decision by the 50th GST Council to impose a 28 per cent Goods and Services Tax (GST) on online gaming. They argue that this move is unconstitutional, irrational, and detrimental to the thriving online gaming sector in the country. The decision, they claim, lumps skill-based online gaming with gambling activities, ignoring decades of established legal jurisprudence.

Roland Landers, CEO of the All India Gaming Federation, stated that the decision by the GST Council is not only unconstitutional but also egregious. He believes that this decision will lead to the collapse of the entire Indian gaming industry and result in the loss of hundreds of thousands of jobs. Landers expressed concern that the only beneficiaries of this decision will be illegal offshore gaming platforms, which are in direct opposition to the nation’s interests.

Joy Bhattacharjya, Director-General of the Federation of Indian Fantasy Sports (FIFS), expressed disappointment in the decision to apply a 28 per cent GST on the total entry amount, including prize money. Bhattacharjya argues that this change in valuation will cause irreparable damage to the industry, result in revenue losses for the government, and lead to the loss of employment for skilled engineers.

Also Watch: Nothing Phone (2) with Snapdragon 8+ Gen 1 chipset launched in India: Price, specs, pre-order offers, more

Industry leaders warn that this decision will drive users toward illegal betting platforms, increasing the risk to users and resulting in a loss of revenue for the government. They believe that a more reasonable tax rate, such as 18 per cent, would have been more conducive to the growth and sustainability of the gaming industry.

Finance Minister Nirmala Sitharaman defended the decision, stating that it was not intended to target any specific industry. She emphasised that the decision was made after consulting with all members of the GST Council, including representatives from states like Goa and Sikkim, where casinos play a significant role in the tourism sector.

Also Read Game, set and AI: Wimbledon 2023 will see AI commentary for the first time in tennis with help of IBM

Aaditya Shah, COO of IndiaPlays, highlighted the challenges that the 28 per cent tax rate will pose to the gaming industry. He expressed concern that this higher tax burden will limit companies’ cash flows, hampering their ability to invest in innovation, research, and business expansion. Shah stressed the importance of distinguishing between skill-based games and casinos/betting apps, as they should not be treated in the same manner.

Siddharth Sharma, SVP – Business Strategy, Head Digital Works (A23) said, “The new tax rate of 28 per cent on Gross Gaming Value is an unexpected move by the GST Council, which will have far-reaching consequences for the industry and question its basic viability. Not only will this burden hinder the growth of this nascent industry, its application will compress new innovation and opportunities.”

Industry experts suggest that a more reasonable tax rate of 18 per cent would have been beneficial for the gaming industry. They argue that the online gaming sector has created over 200,000 jobs and that this decision undermines India’s startup ecosystem.

The industry leaders urge the GST Council and the government to reconsider this decision. They find it unfortunate that despite the government’s support for the industry through online gaming rules and clarity on tax deduction at source (TDS), such a legally indefensible decision has been made, disregarding the views of most Group of Ministers (GoM) states that thoroughly studied this matter, according to Landers.

Sagar Nair, Co-founder, and CEO of Qlan, the Gamers’ Social Network said, “The decision of the GST council to impose a 28 per cent tax will have a significant impact on the online gaming industry, which unfortunately includes the Esports community. While we understand that the government needs to impose such measures on casinos, horse racing, and gambling, the higher tax rate is not justified for the competitive gaming community.” 

“It can discourage new players from entering the market as their hard-earned earnings generated through their efforts just like mainstream athletes will be taxed on the same level as those involved in gambling and other such practices,” he added.

Gaurav Kapoor, Chief Financial Officer, Baazi Games said, “The announcement of levying 28 per cent GST tax rate on the face value is a decision in the reverse direction and will lead to stunted growth, revenues and investments into the Online Gaming Industry. This development will spur growth in offshore companies and the users increasingly opting to play on illegal platforms. Which will lead to job losses and making Indian companies de-grow from the current levels. The decision will further negate the Hon’ble Prime Minister’s vision of Digital India and making India the global gaming hub.”

Also Read Elon Musk’s Twitter threatens legal action over Threads app, Meta hits back

Rohit Agarwal, Founder & Director of Alpha Zegus said, “Yet again, esports being included in the same domain as online gaming, horse racing, and casino, has put our industry at a major disadvantage. While the government might have fair reasons to impose higher GST on horse racing and casino winnings, imposing the same rules on an industry like esports doesn’t seem fair. Esports does not only have a ‘win or lose’ situation basis luck but has a very big element of skill that determines the outcome of the game. This is not what I expected, and our fight to separate esports from other labels still continues.”

Gaming & sports media platform Nazara said in a statement: “This tax, once implemented, will apply only to the skill-based real money gaming segment of our business. The contribution of this segment to our overall consolidated revenues for the financial year FY23 was 5.2 per cent. To the extent required, the Company will proactively take steps to mitigate any potential impact to this segment of our business, and we anticipate minimal impact to our overall revenues.”

Pratik Jain, Partner Price Waterhouse & Co LLP said, “The decision to levy 28 per cent on gross value in case of online gaming and casinos is perhaps not what the industry was hoping for.  While it has been indicated that this proposal is ‘clarifictory’ in nature, it would have better to make it prospective to put the past dispute to rest.”

Kartik Solanki, Partner-Indirect Tax, BDO India said, “For the online gaming industry, this recommendation would lead to a significant increase in tax incidence as compared to the position currently adopted by them, where they were paying tax only on platform fees. This will also lead to further uncertainty about the liability for the past periods, which is already a subject matter of dispute: the Hon’ble Karnataka High Court in case of Gameskraft Technologies Pvt. Ltd. had held that online games such as rummy is a game of skill and not covered under the purview of ‘betting and gambling’ and hence, the same would not be leviable to GST.”

Also Read

Battle of the billionaires: Elon Musk vs Mark Zuckerberg cage match could make over $1 billion

Google appeals to Supreme Court to quash antitrust directives on Android in India


Leave a Reply

Your email address will not be published. Required fields are marked *