In a recent announcement, Finance Minister Nirmala Sitharaman revealed that the Goods and Services Tax (GST) Council has decided to impose a 28% tax on online gaming, horse racing, and casinos turnover. The decision, reached by a group of ministers (GoM) consisting of representatives from all states and union territories, applies to the full face value of these activities.
The Tax Calculation Debate
During deliberations, the panel discussed whether the tax should be based on the face value of bets, gross gaming revenue, or platform fees alone. Sitharaman clarified that the tax would be levied on the entire value, regardless of whether the games involve skill or are based on chance.
Concerns from the Online Gaming Industry
This development follows the Ministry of Electronics and Information Technology (MeitY) receiving three proposals for establishing Self-Regulatory Organisations (SROs) in the online gaming sector. These SROs aim to regulate and differentiate between skill-based online games and gambling applications.
The Federation of Indian Fantasy Sports (FIFS), a self-governing body representing industry members such as Dream11, Fantasy Akhada, and Guru11, expressed disappointment and warned of potential “irreversible damage” to the gaming industry. They argued that the tax increase could lead to revenue loss, impact employment opportunities, and drive users towards illegal platforms.
A recent Esports Players Welfare Association (EPWA) survey revealed that 61 out of 100 online gamers may discontinue playing due to the anticipated tax hike. The proposed changes place additional strain on the gaming industry, potentially affecting foreign investments, career prospects, and related sectors.
Industry stakeholders, including the FIFS and Games24x7, raised concerns that the GST imposition on Contest Entry Amount (CEA) would render the legitimate online gaming industry financially unviable. They cautioned that consumers may shift towards offshore and illegal platforms, resulting in tax losses, outflows of foreign exchange, and job cuts.
The gaming industry is closely monitoring the implications of these decisions and raising concerns about the potential consequences for its growth, revenue, and employment opportunities.
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Ashneer Grover, one of the Co-Founders of BharatPe, shared his concerns about the 28% GST levy on the online gaming industry. He believes that this decision by the government may have a severe impact on the real money gaming market in India and has criticized the move.
In a tweet, Grover expressed doubt that individuals would be willing to invest ₹100 to play on a ₹72 pot entry with a 28% Gross GST. He also highlighted that if someone wins ₹54 (after platform fees), they would have to pay 30% TDS on that.
Grover also tweeted his disappointment that the fantasy gaming industry, which he was once a part of, stands murdered now. He believes that this decision has LED to $10 Bn being lost in this monsoon.
Kartik Solanki, Partner-Indirect Tax, BDO India said, “ For the online gaming industry, this recommendation would lead to a significant increase in tax incidence as compared to the position currently adopted by them, where they were paying tax only on platform fees.”
He further added, “This will also lead to further uncertainty about the liability for the past periods, which is already a subject matter of dispute: the Hon’ble Karnataka High Court in case of Gameskraft Technologies Pvt. Ltd. had held that online games such as rummy is a game of skill and not covered under the purview of ‘betting and gambling’ and hence, the same would not be leviable to GST.”