Online gaming companies have expressed concerns over the recent decision by the GST Council to impose a 28% Goods and Services Tax (GST) on online gaming, casinos, and horse racing. This move is expected to limit their ability to invest in new games and expansion, as well as impact their cash flows. The All India Gaming Federation (AIGF), representing companies like Nazara, GamesKraft, Zupee, and Winzo, has criticized the decision, calling it unconstitutional, irrational, and egregious. According to AIGF CEO Roland Landers, this decision ignores years of legal precedent and wrongly categorizes online skill gaming with gambling activities. Landers warns that this decision could lead to the collapse of the Indian gaming industry and result in significant job losses.
Industry’s Plea for Lower Tax Rate
Online gaming players have been urging the government and the GST Council to impose an 18% GST rate instead of the recommended 28% rate. IndiaPlays COO Aaditya Shah emphasizes that the implementation of a higher tax rate will pose challenges for the gaming industry. The increased tax burden will limit companies’ ability to invest in innovation, research, and business expansion. Shah also highlights the need for a distinction between skill-based games and betting or casino apps, as they should not be treated in the same manner.
Impact on the Gaming Industry
The E-Gaming Federation (EGF), representing Games 24×7 and Junglee Games, warns that a tax burden exceeding revenues will render the online gaming industry unviable. This could result in the growth of black market operators at the expense of legitimate tax-paying players. EGF Secretary Kumar Shukla adds that the industry’s collapse would also lead to a loss of employment opportunities and negatively impact marquee investors heavily invested in this sector. Shukla argues that online gaming should be recognized as a legitimate business activity protected by the Indian constitution, as various court decisions have affirmed the status of online skill-based games.
Growing Concerns and Economic Consequences
The decision to impose a 28% GST on online gaming has raised concerns within the industry. Startup founders like Grover suggest that the government’s expectations of players investing in games while facing high taxation are unrealistic. Grover believes it is time for startup founders to enter politics and advocate for the industry’s interests. Mitesh Gangar, Co-Founder & Director of PlayerzPot, warns that the increased burden will not only impact the gaming industry but also deter new players from entering the market. This could lead to economic stress, job losses, and a decline in economic growth within the sector. The Federation of Indian Fantasy Sports (FIFS) also predicts that this decision will push users towards illegal betting platforms, posing risks to users and resulting in revenue loss for the government.
A Critical Distinction Erased
Deloitte India’s Partner, Shilpy Chaturvedi, criticizes the council’s decision to remove the critical distinction between games of skill and games of chance when it comes to taxation. This distinction has always been a determining factor in applying tax rates and valuation. Chaturvedi argues that this change will negatively impact the Indian gaming industry, as the levy will now be imposed on the full face value rather than just the margin. Rajat Bose, Partner at Shardul Amarchand Mangaldas and Co, echoes this sentiment, noting that the removal of this distinction is a setback for the industry. Previously, there was an expectation that the levy would only apply to the margin, not the entire face value.
The decision by the GST Council to impose a 28% GST on online gaming companies has sparked concerns within the industry. Online gaming players argue that this high tax rate will limit their ability to invest in new games, impact cash flows, and hinder business expansion. The industry also argues that online skill-based games should be treated differently from gambling activities. The implications of this decision may include job losses, a decline in economic growth, and an increase in illegal betting platforms. The gaming industry urges the government to reconsider this decision and support a more progressive GST regime to ensure its viability and growth.
Leave a Reply