Interview: Tax collections from online gaming may jump to Rs 20,000 cr in FY23-24: Revenue Secretary Sanjay Malhotra

Online-gaming Delhi High Court

Terming  the online gaming industry’s concerns of a decline in revenues as only an “apprehension,” Revenue Secretary Sanjay Malhotra said the government estimates a jump in tax collection from the sector in FY23-24 upto Rs 20,000 crore, if growth rates remain the same.

“We collected about Rs 1,700 crore from online gaming in FY22-23. If the industry continues to grow at the same rate, then we should clock around Rs 15,000-20,000 crore,” Malhotra said.

On July 11, the GST council announced that it was going to levy 28 percent tax on  the face value of the game, or the payment made to the platform by users. The effective date for the levy will be made known after amendments to the GST law, said Finance Minister Nirmala Sitharaman after the council meeting.

While the levy led to an uproar from the gaming industry, which termed it a death knell, Malhotra played down the concerns in an interview with Moneycontrol.

He said that how the online gaming space is eventually  impacted will be known only once the higher tax rate becomes applicable.

Though the industry has been claiming that online gaming is different from gambling and betting, Malhotra defended the GST council’s decision saying that when online games are based on wagers, irrespective of whether they’re  wagers on skill or chance, they’ve always been taxed on the face value under GST.

``Tax authorities have to follow the principle of equity. If online gaming is treated as betting or gambling, and if betting, gambling, and lottery are taxed at 28 percent, then online gaming has to be treated the same way,’’ he said.

Even if online gaming is treated as entertainment, many entertainment-related offerings such as tickets to a sporting event are taxed at 28 percent, he pointed out.

However, Malhotra clarified that when a game of skill is played online without any wagers on the outcome, it is considered a game of skill, and only the consideration of service will be taxed at 18%.

All online gaming platforms currently pay 18 percent GST on the platform fees, also known as the Gross Gaming Revenue (GGR), and not on the full value of the transaction, also known as the Contest Entry Amount (CEA).

Revenue targets

Malhotra is hopeful of meeting the gross tax collection target for FY23-24, despite concerns that an impending growth slowdown may impact the government’s revenue position going ahead.

“We are more or less in line with the targets so far, and are hopeful of achieving the same, although it is early days with just the first quarter being over,” Malhotra said, adding that the economy is behaving well, there’s good credit growth,  the current account deficit is under control, forex balances have shot up, and inflation is range-bound.

However, he said that a tax buoyancy of more than 1.1 on a sustained basis would be difficult to achieve since revenues grow in line with the growth of the economy, but any buoyancy of more than 1 should be good.

The government has pegged gross tax collections at 33.6 lakh crore in 2023-24, 10.4 percent higher than the Rs 30.4 lakh crore projected in the revised estimates for the previous financial year.

Malhotra said that while the government monitors inflation and tweaks excise and customs duties as needed to control it, there is no move to change the excise duty on fuel at the moment, since the rates are already quite low with the central government administering two cuts,  one in November 2021, and another in May 2022.

Byju’s probe

On whether the income tax department would also probe Byju’s, Malhotra said that the government takes a holistic approach in cases of wrongdoing.

The Ministry of Corporate Affairs (MCA) is reportedly looking into the accounts of edtech titan Byju’s, which was rocked by the resignation of its auditor and three board members last month.

"If any wrongdoing is detected that concerns other departments as well, then they should also investigate,” he added.

Based on the findings of the MCA probe,  the government will decide if the matter needs to be escalated to the Serious Fraud Investigation Office.