Indian online gaming companies write an open letter to govt over 28% GST imposition fiasco

Post the GST Council came up with new recommendations for the online gaming industry in India wherein Union FM Nirmala Sitharaman announced that 28% GST be levied on the total value of online gaming, horse racing, and casinos.

Through the same, the govt has also put an end to the much-abated conversations around the demand for a bifurcation between skill-based and chance-based games as it was announced that there will not be any differentiation between the two.

In the aftermath of the same, a group of 100+ young Indian entrepreneurs and CEOs from India’s online gaming industry expressed their concerns over how the move will not only hamper the online gaming space in the country which employs over 1 million people, 500 million users, etc. but that the same will put kill 99% companies in less than 6 months.

In the letter titled “Death by a 1000 cuts” the players from the Indian gaming Industry stated, “The proposal to charge GST on the entire Deposit Value, instead of the Platform Fee, will kill 99% of the Companies in the sector in less than six months. This will undo all the work done by the Central Government to support the industry and lead to a very large number of immediate job losses and business closures. Additionally, this announcement has immediately driven users to the offshore gambling operators which is anticipated to only grow with time this will ultimately lead to neither tax collection nor the growth of the industry.”

The letter also addressed and lauded the support and relentless efforts made in the gaming space by the Central Government in the past couple of years such as the formation of the Inter-Ministerial Task Force (IMTF), change in business allocation rules, notification of online gaming rules, creation of a central light-touch regulatory framework, clarity on direct tax (TDS) for Online Gaming etc.

“Online skill gaming is currently a $2.5 billion sunrise sector, set to reach $5 billion by 2025. The total number of online gamers grew from 360 million in 2020 to over 420 million in 2023. India’s gaming industry attracted FDI of about $500 million between 2014 and 2020, and over $1.5 billion between January 2021 - June 2022. The industry is growing at an average CAGR of around 30% and currently supports lacs of direct and indirect jobs, and these numbers will grow substantially in the next few years,” the letter mentioned.

Highlight the adverse consequences of such taxation, the players suggested that the move will hamper the Prime Minister’s vision of Make in India, Startup India, Digital India and the ability to create a vibrant self-reliant Aatma Nirbhar Bharat as the same would lead to an untimely death of an emerging sector that will discourage the youth from entrepreneurship which is the key driver of innovation, job creation and Aatma Nirbhar Bharat.

“The implementation of the recommendation of the GST Council will result in an unprecedented 400% - 500% increase in GST burden which will be a killer for most gaming companies in India as it will stifle competition, hinder innovation, and impede the growth potential of the industry, thereby disproportionately impacting a large number of MSMEs and startups and making it challenging for them to survive,” the letter emphasised.

As per the players, the GST Council’s recommendation will disproportionately increase the cost of each game for over 500 million users of Bharat, who are already required to pay 30% income tax on winnings. Therefore, bearing such a large increase in cost is highly unlikely which is why the users will eventually shift to black market operators to avoid the increase in playing costs and reduction in the winning pool, resulting in a proliferation of the underground black economy and numerous criminal activities.

“While the sunrise Indian online gaming industry will struggle to survive, the biggest beneficiary of such a change in the tax regime will be black market operators including illegal offshore gambling websites and nefarious unscrupulous elements, resulting in a substantial tax loss to the government and players which won’t be accountable and fall under the under the proposed SRB regime by MeiTY,” the letter mentioned.

It also pointed out that the imposition of a fatal GST rate will strongly debilitate investors, both domestic and foreign, from considering India as a viable investment destination and that the impact will not only be on attracting fresh capital in Gaming but also on the far wider Indian Startup ecosystem, as the majority of these financial institutions invest across sectors and favourable regulatory landscape is one of the single most important drivers for FDIs.

“Currently, the industry is paying 18% GST on GGR/platform fee, and an increase of GST to 28% on GGR/platform fee will result in 55% increase in GST quantum. That being said, GST on platform fee or gross gaming revenue is the only international practice and multiple countries such as France and the United Kingdom had to move away from levying tax on the stake value to Gross Gaming Revenue/Platform Fee, as the former had led to a shifting of business to the grey market and substantial reduction in tax revenues,” the players opined.

On a concluding note, the entrepreneurs from All India Gaming Federation, E-Gaming Federation, Ability Games, Baazi Games, Deltatech Gaming, etc. urged that an opportunity to discuss this representation in detail with the govt be granted at the earliest to allow the industry to compete on the world stage.

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