December 3, 2023

Shares of Delta Corp opened at their 10 per cent lower circuit of 222.15 while those of Nazara Technologies cracked over 14 per cent in early deals after the Goods and Services Tax (GST) Council on Tuesday (July 11) levied a 28 per cent uniform GST on online gaming, horse racing, and casinos on the full value of the bets.

After weak opening, Delta Corp share price continued to drop while Nazara Tech share price pared some losses in morning trade. At 11 am, Delta Corp quoted at 197.45 down 49.35, or 20%, and Nazara Tech was trading at 673.75, down 32.75, or 4.64%.

Read more: GST shock: Online gaming, casinos to be taxed at 28%

GST Council Meet Decision

“I am happy to say we have arrived at a decision. There will be some amendments to GST law. Simply put, online gaming, horse racing, and casinos will be taxed at 28 per cent and will be taxed on full face value,” finance minister Nirmala Sitharaman said.

The finance ministry explained that the amendments to GST law will be brought to specify that tax will be applicable on the face value of the chips purchased in the case of casinos, on the full value of the bets placed with bookmaker/totalisator in the case of horse racing and on the full value of the bets placed in case of the online gaming.

Additionally, the GST on online gaming will be applied uniformly, without any distinction between games that require skill or those that depend on chance.

Industry players expressed their concerns. Malay Kumar Shukla, secretary of the E-Gaming Federation, called the move “an extremely unfortunate decision as charging a 28 per cent tax on full face value will lead to a nearly 1,000 per cent increase in taxation and prove catastrophic for the industry”.

GST Impact on Online Gaming Sector

Mint reported earlier, quoting a report by the eSports body, the Indian online gaming industry is growing annually at a rate of 30 per cent and is one of the fastest-growing segments within the media and entertainment sector.

Read more: ‘Gamers must not be taxed the same way as gamblers,’ E-sport body says on 28% GST proposal on online games

As of May 2022, the country accounted for 19.2 per cent of worldwide game downloads. The compound annual growth rate of the gaming industry is of approx 22 per cent. In 2021 India recorded about 390 million online gamers.

As per the EPWA survey, if policymakers increase the GST on online gaming, 61 out of 100 online gamers might discontinue playing online games.

The proposed changes in tax rate will increase the financial burden on the gaming industry as they will become liable to pay tax on those portions of the money as well, which does not in any manner contribute to generating revenue for these companies, the report added.

Ranjeet Mahtani, Partner at Dhruva Advisors underscored that GST is an indirect tax, i.e. it is a tax on the consumer (receiver of the supply), and so, the burden of the tax will typically be passed on to the consumer.

“In effect, to place a bet of 100, a consumer will have to shell out 128 ( 28 being the GST) or, if the available amount is 100 the full value of the bet will be 78 (and the GST is 22), if GST is included therein. Notably, either the cost of online gaming will rise (for the consumer) or, if the demand is inelastic, the full value of the bet placed will decline,” said Mahtani.

Meanwhile, Nazara Tech, as reported by CNBC-TV18, said the 28 per cent GST rate once implemented will apply only to the skill-based gaming segment of the business. “Skill-based gaming segment contributed 5.2 per cent to FY23 revenue. We anticipate minimal impact on our overall revenue from GST rate hike,” CNBC-TV18 reported quoting Nazara Tech management comments.

Read More: ‘Implementation of 28% GST rate will bring challenges to online gaming industry’

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Updated: 12 Jul 2023, 02:44 PM IST


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