On Tuesday, online gaming companies stated that the levy of a 28% GST will limit their ability to invest in new games, hurt cash flows, and limit business expansion. The GST Council decided to tax online gambling, casinos, and horse racing at a rate of 28%. The whole face value would be subject to taxation.
The All India Gaming Federation (AIGF), which represents companies such as Nazara, GamesKraft, Zupee, and Winzo, criticized the council’s decision as being unlawful, unreasonable, and egregious.
“We are disappointed that the GST Council and authorities have chosen to apply 28% GST on the total entry amount including prize money,” said Joy Bhattacharjya, director general, of the Federation of Indian Fantasy Sports (FIFS). This has been a shared sentiment among all stakeholders of India’s sprawling online gaming industry ever since the Goods and Services Tax (GST) Council announced a 28 percent tax on the turnover of online gaming.
A change in valuation to tax on the total consideration, according to Bhattcharjya and many FIFS members, will cause damage to the industry irreparably, lead to diminished revenue for the government, and result in the loss of employment for over 100,000 skilled engineers. The decision, he continued, “will push users towards illegal betting platforms, resulting in user risk and loss of revenue for the government.” He stated that the decision “will have a chilling effect on the USD 2.5 billion of FDI already invested by investors and jeopardize potentially any further FDI in the sector.”
Over the years, the Indian online gaming industry has been expanding significantly. Today, close to 1,000 companies are operating in this industry, which employs more than 1 lakh people.
Gaming in India
The GST Council’s latest decision shocked the Indian gaming industry, which is estimated to be worth $2.8 billion in revenue in FY22. Whether an online game is regarded as a game of skill or a game of chance impacts its taxation and legality in India. It is believed that games of chance attract more indirect tax or GST, and games of skill draw less GST. As of right present, the council believes that there should be no distinction made between the two kinds of games. The main conundrum was whether to apply GST to the entire cash pool or only the service element generated by the taxpayer long before the decision to levy a 28% GST.
The Finance Minister has since clarified, however, that the tax will be levied to the entire value. Instead of the total gaming revenue, which the industry desired, the tax will essentially be levied on the full face value of the bet placed (or money spent to play the game). Insiders in the industry are confident that this will have a significant impact.
👉 Recommendations of 50th meeting of GST Council
👉 GST Council recommends Casino, Horse Racing and Online gaming to be taxed at the uniform rate of 28% on full face value
👉 GST Council recommends notification of GST Appellate Tribunal by the Centre with effect from… pic.twitter.com/9LMcvJDYpe
— Ministry of Finance (@FinMinIndia) July 11, 2023
Big impact
As the nodal agency for the online gaming enterprise, the Ministry of Electronics and Information Technology is in charge of providing the sector with the boost it needs to grow sustainably.
The path that India will take for its growing online gaming sector has been unclear for months, However, the industry now has further reasons to be worried due to the new taxing framework. The government would need to amend the GST Act to include online games under the category of taxable claims, which also includes betting, lottery, and gambling, to impose a 28% GST on the whole face value of the games.
