28% GST on online gaming: Industry players react to FM’s announcement

After GST Council meet, decision to impose a 28 percent tax on the full face value of bets placed on online games was announced

Union Finance Minister Nirmala Sitharaman on August 2 announced the decision to impose a 28 percent tax on the full face value of bets placed on online games. It will be implemented from October 1. There would be a review of the levy after six months of its implementation, she added.

Here’s how several industry players reacted to the 28 percent GST on online gaming announcement:

The All India Gaming Federation (AIGF), which represents over 120 online gaming companies:

“We believe the decision by the GST Council of valuation on deposits will severely impact the online gaming sector and result in a situation where a majority of players, including the MSMEs will no longer be able to survive in the face of the increased tax liability of 400-500 percent.

Only established and well-entrenched skill gaming companies may be able to scrape through this change by using their existing capital reserves to counter the effects of substantially increased tax liability. However, even their revenues and valuations will significantly fall.

Additionally, companies at their early growth stages, particularly those within the startup and the MSME sector will be disproportionately impacted.

Moreover, the rampant illegal offshore gambling websites will thrive as efforts to block them has been ineffective till now.

As the oldest and largest apex industry association for online gaming, and the voice of MSME gaming startups, we sincerely hope that as mentioned in the meeting, there will be a rethink after six months and a stable and progressive regime can be proposed, which will help the industry grow, provide safe platforms to digital nagriks, while increasing tax revenues and contributing to the vision of India becoming a global gaming power house.”

Soham Thacker, Founder & CEO of gaming platform Gamerji:

“The GST council has today announced that a levy of 28 percent on face value will be implemented from October 1. This was an expected move. As an industry, it is expected to affect online gaming both RMG (real-money gaming) and non-RMG's user base and overall gaming experience. While we are going to obey the law of the land, we feel that focusing on entering new international markets will serve as a good strategy to manage the impact of the GST levy.”

Sudipta Bhattacharjee, Partner, Khaitan & Co:

“The GST Council clarified that vis a vis online real money games (‘fantasy’ games as well as other real money games) the GST at 28 percent will be applicable on the actual cash/equivalent deposits made by players on an online gaming platform to commence gameplay and not on the winning amounts being redeployed by players for further gameplay.

"While this will certainly afford some amount of relief to the online real money gaming sector, many smaller start-ups in this segment may still get very badly hit once this higher GST comes into force – some of them possibly even before the expiry of the review period of 6 months as mentioned in the press briefing.

"The problem remains that GST, despite being a tax on the supply of goods/services, is being levied on a value that is much higher than the actual revenue earned by the online gaming platforms for their supply of facilitation services to players. Though a reconsideration was sought by the State of Delhi, it was unfortunately overruled.

Investors in this sector may continue to be concerned given the ‘blow hot, blow cold’ approach towards online gaming as a sector where on the one hand, the sector is lauded and encouraged through ‘light touch’ regulations by the MeITY and on the other hand punitive taxation is reaffirmed to be imposed under GST (despite several pleas from the sector) by levying the same level of GST as ‘betting and gambling’ on online games of skill, ignoring decades of settled legal position that games of skill cannot be equated with gambling.”

Federation of Indian Fantasy Sports and E-Gaming Federation (FIFS & EGF), which represent 50 Indian online gaming companies:

Appreciate the government addressing the industry’s concerns on the issue of repeat taxation. The new tax framework, while clarifying and resolving uncertainty, will lead to a very burdensome 350 percent increase in GST and set the Indian online gaming industry back several years. However, it will allow gaming companies a fighting chance to innovate and rebuild the foundation of gaming in India.