This could lead to 50-60% indirect tax burden on gamers as mostly they use their winning money to play another game, which would be taxed again, and so on, industry executives said.
“Every stakeholder has raised this issue. We believe that levying GST on face value at each game will severely impact the engagement of the user with the platform,” said Roland Landers, CEO of All India Gaming Federation, which represents companies such as Mobile Premier League, Zupee, and Gameskraft. “It will make the cost per game prohibitive and may cause unsuspecting users to move towards illegal offshore gambling websites,” he told ET.
“Additionally, this will make the business of Indian online gaming companies unviable and result in loss of investment for the investors,” Landers said.
Also read: Online gaming companies seek more clarity on GST
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Companies have raised their concerns with government officials.
“We are aware of the concerns of the industry and will try to keep it simple and less complicated,” a senior finance ministry official told ET.
“Some of the industry representatives said this will make taxation for online gaming higher than casinos,” the official said.
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The GST Council had last week announced a 28% GST on the turnover of online gaming companies, casinos and horse racing companies.
In casinos, the tax will be on the entry ticket irrespective of how much users spend, while in the case of online gaming firms, every time a user enters a contest, the entry fee will add to the firm’s turnover.
The general opinion is that the tax should be on the number of times a user plays, the official said.
A gaming industry executive said repetitive taxation is against the principle of GST, which is supposed to be a simplified indirect tax regime.
Also read: Online gaming companies say only illegal platforms will gain from 28% GST
“This could affect the net winnings of players and might push them away to illegal platforms that would be offering better returns,” the person said on the condition of anonymity.
In India, there are an estimated 400 million users of online gaming at present.
“Users generally don’t withdraw their winnings from the first contest and go home… They typically re-enter new contests from their winnings,” another industry insider said. “If the levy happens multiple times on the same deposit amount, it could mean that players will end up losing money even with a high winning rate.”
Also read | Will request GST Council to reconsider 28% tax on online gaming: MoS Rajeev Chandrasekhar
On an average, users of card games and fantasy sports tend to play at least thrice with their winnings.
Now, if a player enters with an initial deposit of Rs 100 – of which Rs 22 is tax (28% of Rs 78) – and assuming a platform fee of Rs 12 (15% of Rs 78), and wins back their initial pot money of Rs 66, when decides to play again, another Rs 18 of tax (28% of Rs 66) will be levied, taking the total tax to Rs 40, and so on.
“We understand where the government is coming from in terms of its thinking that every transaction must be taxed and we support the government in its tax collection efforts…but, unfortunately, what happens in gaming is that because the same rupee is used again and again, you end up taxing the same rupee again and again,” a top executive at an online gaming firm said.
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“So, what is really a 28% tax on entry fees, ends up being 50-60% tax on player money, depending on how much players are able to play and depending on game to game and platform to platform,” said the person who requested anonymity.
This could prove to be a bigger blow than what the industry initially perceived, assuming that the 28% tax will be levied only once.
“We are happy to pay 28% tax on full value, and there is an understanding that a review may not happen anytime soon…but the repetitive element only tells players to play fewer contests,” a third gaming industry executive said.
Queries sent to industry associations E-Gaming Federation (EGF) and Federation of India Fantasy Sports (FIFS) did not elicit any response till press time Wednesday.