Real-money gaming sector offers formula to resolve 28% GST woes

The GST Council is likely to meet virtually on August 2 to discuss the mechanism of levying 28% GST on real-money gaming sector, apart from the legal amendments required to the GST law

India's real-money gaming industry executives have approached the finance ministry to propose imposing a 28% GST on the sum total of 'net deposits' at the company level, instead of the previously suggested 28% tax on gross deposits, sources familiar with the matter told Moneycontrol.

This proposal comes in response to the controversy caused by the GST Council's recommendation to tax the country's online real-money gaming industry earlier this month. Several startup executives, industry associations, and investors had previously warned that this move could "wipe out the entire industry and lead to job losses."

The GST Council is scheduled to meet virtually on August 2 to discuss the mechanism of levying a 28% GST on the real-money gaming sector, in addition to the necessary legal amendments required to the GST law, as reported by Moneycontrol on July 26.

Sources suggest that if the 28% tax is imposed on gross deposits, it could have a significant impact on real-money gaming formats that involve one-on-one matches such as rummy, poker, chess, and pool. This could potentially result in up to a 70% reduction in overall prize winnings for players.

As a consequence, there might be a major drop in the number of players participating in these platforms, leading to a significant decline in transaction volumes, according to industry insiders.

Hence, the industry has put forward a proposal to levy GST on 'net deposits', which is calculated as the sum of all money deposited to the pool minus player withdrawals.

On July 11, the GST Council decided to impose the top GST slab of 28% on the full value of the money paid by users to play skill-based games in a uniform manner, without distinguishing between games of skill and chance. Gaming platforms currently pay an 18% GST on platform fees.

In response to this decision, a group of approximately 130 real-money gaming startup founders, CEOs, and industry associations signed an open letter to the government, requesting them to reconsider the GST levy, as reported by Moneycontrol on July 15.

Following that, a group of 30 prominent domestic and international startup investors, including Tiger Global, Peak XV Partners, and Steadview Capital, wrote to Prime Minister Narendra Modi, stating that a 28% GST on online real-money gaming could lead to a potential write-off of the $2.5 billion in capital invested, as well as the loss of over 50,000 high-skilled jobs, according to Moneycontrol on July 21.

These investors expressed concerns that the current GST proposal would create the "most onerous tax regime for the gaming sector" worldwide.

Revenue Secretary Sanjay Malhotra, however, downplayed these concerns in an interview with Moneycontrol on July 13. He stated that when online games are based on wagers, regardless of whether they are skill-based or chance-based, they have always been taxed on the face value under GST.

According to a recent FICCI-EY report, the real-money gaming segment accounted for 77% of India's gaming sector revenues in 2022, amounting to Rs 13,500 crore. These revenues are projected to grow to Rs 16,700 crore in 2023 and Rs 23,100 crore in 2025.