The government’s proposal to tax online gaming at the highest rate under the goods and services tax (GST) has the sector concerned about its prospects for future expansion.
It was reported that a proposal from the group of state finance ministers to collect a 28% GST on casinos, and horse racing, along with online gaming, is expected to be reviewed by the GST Council at its upcoming meeting on June 28.
Online gaming should be taxed at the entire value of the consideration, including the contest entry fee paid by the player upon participation in the game, according to a recommendation made by the Group of Ministers led by Meghalaya chief minister Conrad Sangma.
However, executives and online gaming industry experts have expressed concerns. According to them, it could slow down the expansion of online gaming companies and force fantasy sports companies to provide smaller prize pools, which could cause their loyal customers to quit the platforms in pursuit of greater games.
Kowshik Komandur, AVP with one of the leading mobile entertainment companies, shared his opinion regarding this matter with News18.
According to him, the online gaming industry revenue is poised for a manifold increase of revenue by the end of this year. While citing details available on Statista, he said that this market is currently at $ 1.54 Billion in 2022 and it’s expected to grow to $ 5 Bn by 2025 leading to 2 lakh additional jobs in the process and India becoming one of the leading gaming markets in the world.
“Today unfortunately in India, every state has different regulations and policies and this has turned out to be a hindrance to the growth of this high potential industry. Constant uncertainty will only lead to the drying up of the flow of FDI into the industry and this is something the government does not want,” the industry insider stated.
Komandur said that Prime Minister Narendra Modi firmly stated that “the gaming market is huge internationally and the number of youth connected to this market globally is increasing” and the Ministry of Electronics and Information Technology held a meeting with multiple online gaming platforms, including some of the major gaming unicorns to discuss the framework.
However, he said: “The current regime taxes online games at 18% GST. This is very much in line with international standards of 15-20%,”
But Komandur also highlighted that “the jump in revenue has invited the government’s attention towards GST taxation”.
“The government is now looking to impose 28% GST on the online gaming industry, as a move to regulate the sector, citing the example of horse racing. Any further increase from the current levels would only lead to the burden of the payment of the GST being passed on to the players and could also encourage players to stray towards more viable games hosted offsite,” he noted and added that “by all accounts, this move could lead to discouraging the gambling and betting within the country”.
Meanwhile, Dinker Vashisht, vice-president, of corporate and regulatory affairs, Games24x7, told Mint that Not only will such a choice (levying GST on total pool instead of GGR) be disastrous for the sector, but it also violates both the principles of fair taxation and GST guidelines.
As per Vashisht, only the lottery, betting, and gaming are considered “actionable claims” under the GST Act. Creditors can make actionable claims on any sort of debt other than one secured by a mortgage of immovable property.
In real money gaming, for example, money placed by players to create a prize pool that is then dispersed among winners is an actionable claim.
Vashisht also said: “Only the platform fee charged by skill gaming operators constitutes the value of supply.”
As reported, other industry experts are also concerned that the prize pool reduction may drive many gamers to offshore betting companies that offer fantasy sports, online rummy, and poker.
It is noteworthy that from 360 million in 2020 to 390 million in 2021, the overall number of online gamers increased by 8%, and India is predicted to become one of the world’s biggest gaming marketplaces.
According to a KPMG report, it has been gradually growing for the last five years and is predicted to triple in value to $3.9 billion by 2025.
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