Moneycontrol Pro Panorama | A straight flush for the government

The GST on online gaming is taxed at the first entry point and the residual money on which the bets are placed are taxed at a rate of 30 percent in the case of winnings.

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The nascent but rapidly growing online gaming industry has been dealt a severe tax blow. The Goods and Services Tax (GST) Council, in its 50th meeting on Tuesday, decided to levy a uniform 28 percent tax on the full face value of transactions placed in online gaming, casinos, and horse racing.

Explaining the rationale, Finance Minister Nirmala Sitharaman said the intent was not to end an industry linked to online gaming, casinos and horse racing. But the decision was an outcome of a discussion on the moral issue of whether these activities should be taxed at the same rate as essential items.

This is like comparing apples with oranges. Essential items are consumables and taxed in the hands of consumers. The GST on online gaming is taxed at the first entry point and the residual money on which the bets are placed are taxed at a rate of 30 percent in the case of winnings. In the case of losses, the entire money is lost and there is no provision of setting losses off against winnings. Given the low rate of success in such games, the odds are now stacked completely against the players.

Naturally, the industry is up in arms. "The implementation of a 28 percent tax rate will bring significant challenges to the gaming industry. This higher tax burden will impact companies' cash flows, limiting their ability to invest in innovation, research, and business expansion," says IndiaPlays COO Aaditya Shah said.

“The US and China are the market leaders with 23 percent and 25 percent (share), respectively. This is a borderless industry and over-taxation in India will only support the cause of the overseas gaming companies and encourage Indian industry to migrate overseas,” said Amrit Kiran Singh, chief strategy Advisor to the founders of Gameskraft.

The E-Gaming Federation (EGF), whose members include Games 24x7 and Junglee Games, said  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.

The EGF claimed that online gaming is different from gambling and the Supreme Court and various High Court decisions have reaffirmed the status of online skill-based games as a legitimate business activity protected as a fundamental right under the Indian Constitution.

The industry fears, and rightly so, that high taxes would give foreign players an unfair advantage. US and Chinese companies, with nearly 50 percent market share, are knocking at the door of the Indian gaming market.

Besides the loss of jobs, the move will hit the funding industry. Nearly $2.8 billion has been invested in the gaming industry in India. The All India Gaming Federation (AIGF), which represents companies such as Nazara, Gameskraft, Zupee and Winzo, said the decision by the Council is unconstitutional, irrational, and egregious.

"The decision ignores over 60 years of settled legal jurisprudence and lumps online skill gaming with gambling activities. This decision will wipe out the entire Indian gaming industry and lead to lakhs of job losses and the only people benefitting from this will be anti-national illegal offshore platforms," said AIGF CEO Roland Landers.

In gambling, it is said that the house always has an edge. In India, the government has beaten the house at its own game and the edge is now with the government without incurring a rupee of risk.

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