'Will wipe out the entire industry', say online gaming cos after GST set at 28%

The real-money gaming segment accounted for 77 percent of India's gaming sector revenues in 2022 which stood at Rs 13,500 crore, as per a recent FICCI-EY report.

The GST Council's decision to levy 28 percent tax on the face value of the transaction or entry fees of online real-money gaming, will wipe out the entire industry and lead to job losses, industry stakeholders said on July 11.

"We believe this decision by the GST Council is unconstitutional, irrational, and egregious. The decision ignores over 60 years of settled legal jurisprudence and lumps online gaming with gambling activities," said Roland Landers, CEO of All India Gaming Federation (AIGF), a real-money gaming industry body.

AIGF claims to have over 150 members including online gaming companies and game developers across all formats and genres. Among its prominent members include Nazara Technologies, Mobile Premier League (MPL), Gameskraft, Head Digital Works (A23), and Zupee.

Landers said this decision will lead to lakhs of job losses and will benefit "anti-national illegal offshore platforms."

"It is very unfortunate that when the Central Government has been supporting the industry - in terms of online gaming rules, clarity on TDS, etc that such a legally untenable decision has been taken, ignoring the views of most GoM states who studied this matter in detail," he said.

Amrit Kiran Singh, chief strategy advisor to the founders of the skill-gaming firm Gameskraft, said the move "negates all the good work" that the government has done to support the industry.

"Today's decision at the GST Council is not in national interest as it will destroy a significant portion of the successful companies in India's startup ecosystem. Unfortunately, it also appears to show that the different limbs of the government are not in sync" he said.

Singh also noted that "over-taxation in India will only support the cause of the overseas gaming companies and encourage Indian industry to migrate overseas. And with it, so too the economic benefits that should rightfully accrue to India. This is a self goal that causes a body blow to India's startup ecosystem"

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

Games24x7 co-founder Bhavin Pandya said the tax on CEA creates a hostile environment for legitimate domestic platforms with an "unrealistic tax burden" and is counterintuitive to the measures that the government has taken to promote this sunrise sector.

"This contradicts the government's efforts to promote a healthy domestic online gaming sector, as demonstrated in the MeitY's online gaming rules and the Finance Bill 2023 amendments to the Income Tax Act" Pandya said.

MeitY's gaming rules

In April 2023, the Ministry of Electronics and Information Technology (MeitY) notified new gaming-related amendments to the IT Act 2021, that will allow multiple self-regulatory organisations (SROs) to determine whether a real-money game, where the transfer of money is involved, is permitted to operate in India or not. The Union Budget 2023 also brought in TDS-related changes to the Income Tax Act.

"GST Council's discussions today on online gaming were substantive. The Council will ensure it is in touch with IT ministry. We will align with the regulation the ministry brings in," finance minister Nirmala Sitharaman said on July 11.

The minister mentioned that the changes will be made in the GST law to state that online gaming, casinos and horse racing are not actionable claims, like that of lottery and betting. There will be no distinction between games of skill and chance, she said.

However, the effective date for the 28 percent GST levy on online gaming will roll out after amendments to GST law, Sitharaman clarified.

Jay Sayta, a technology and gaming lawyer, said it will take at least 5-6 months or more to bring into force the changed rate and the manner of valuation of taxation for online skill gaming industry.

"Since it has been decided by the GST Council that amendments have to be made to Entry 6 of Schedule III of the CGST Act to exclude online skill-based gaming from the ambit of actionable claims and correspondingly all 28 states will have to amend their state GST laws to reflect this position" he said.

The real-money gaming segment accounted for 77 percent of India's gaming sector revenues in 2022 which stood at Rs 13,500 crore, as per a recent FICCI-EY report.

These revenues are set to grow to Rs 16,700 crore in 2023 and Rs 23,100 crore in 2025, it said.

Gaming is also a rare sector in India's digital economy that has multiple companies with sizable profits.

Gameskraft posted a profit of Rs 937 crore on revenues of Rs 2,112 crore in FY22 while fantasy sports major Dream11 posted a net profit of Rs 142 crore on operating revenue of Rs 3,841 crore in the same period.

Joy Bhattacharjya, Director General at Federation of Indian Fantasy Sports (FIFS) said this "move will severely disrupt the sector, hindering capital inflow, impact growth and lead users to illegitimate, offshore platforms."

Malay Kumar Shukla, secretary at E-Gaming Federation, mentioned that a tax burden where taxes exceed revenues will not only make the online gaming industry "unviable but also boost black-market operators at the expense of legitimate tax-paying players"

Shukla claimed that charging a 28% tax on full face value will lead to a nearly 1,000% increase in taxation, thereby proving "catastropic" for the industry.

Aaditya Shah, COO at IndiaPlays, stated that the higher tax burden will impact the cash flows of companies, limiting their ability to invest in innovation, research, and business expansion.

"Introducing a 28 percent tax rate not only hampers online gaming platforms' capacity to develop new games and technologies but also undermines their competitiveness in the market. Moreover, the constrained financial resources hinder their ability to enter new markets and reach a wider customer base," he said.

(With inputs from Maryam Farooqui)