Only a pragmatic taxation regime will make the online gaming industry viable

online gaming industry on stiff GST rates

The online gaming industry is making a strong plea against stiff GST rates to protect the industry from degrowth.&nbsp

Mumbai: The Group of Ministers (GoM) set up by the Union Ministry of Finance to look into matters related to the GST regime covering online gaming, casinos and race courses are set to meet on May 2 in Delhi. The online gaming industry is making a strong plea against stiff GST rates to protect the industry from degrowth. 

The online gaming industry has vociferously opposed the proposal to levy GST on 30% of the entry fee + 115 % surcharge instead of platform fee /Gross Gaming Revenue (GGR) which will make the industry commercially unviable. 

Drawing parallels to the international online gaming industry tax structures, industry experts have pointed towards some leading international markets like the USA, UK, Australia and Germany, highlighting how they levy tax on GGR at a rate between 15-20 per cent. Gopal Jain, Senior Advocate, Supreme Court of India, said, “We’ve seen internationally that markets which started taxing the prize pool instead of the GGR have had to revert back to taxing only to GGR as it resulted in non-compliance, revenue leakage and grey markets.”

Advocating the need for levying tax on GGR alone, the online gaming industry has maintained that taxing on GGR instead of the prize pool has proven to increase tax revenue in the long term. And with international learnings also indicating the same, several recommendations have been sent to the GST council, ahead of the scheduled meeting, to plug revenue leakage by preventing shift of the business to the grey market and discourage non-compliance with a prevalent global practice.

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Rameesh Kailasam, Chief Executive Officer, IndiaTech.Org, said “The burgeoning potential of the online gaming industry in India needs to be tapped rightfully. It is necessary that games involving predominance of skill should ideally be taxed at 18% on the platform fee. The GoM should ideally take a positive view and recommend continuance of the current practice of considering the platform fee / GGR as value of supply. Since online skill-based gaming is not gambling or betting or wagering, a clarification needs to be issued to resolve litigation and provide relief to the industry.”

According to a 2021 report by BCG & Sequoia on the Indian Mobile Gaming market, the Indian Online Gaming industry is expected to triple to a $5Bn+ market opportunity by 2025. Gaming is a $1.8Bn sunrise sector in India and is still relatively small (~1% of global), but it is growing rapidly (~38% CAGR). According to the recent FIFS-Deloitte report, Fantasy Sports, a distinct form of online gaming, has the potential to attract Rs. 15,000 crore of FDI in the next three years. 

Experts believe that the industry will suffer significantly if the current taxation regime is changed. In addition, transactions on online gaming platforms are 100% digital and they have a significant contribution to “Digital India”. Moreover, the online gaming industry is believed to play a crucial role in taking the startup spirit in the country to the next level and further boost India’s AVGC sector.  

Expressing concerns on the current ambiguity, S Krishnan – Advocate, Practising in Fields of Sports Law & Taxation, said, “A higher tax burden will make the industry unviable, and online gaming platforms have appealed to the government on numerous occasions to not treat skill based online games same as gambling while sharing a case in point on how a different and rational tax treatment of online skill based games can help in eliminating non-compliance, leakage of revenue and grey markets.”

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Experts believe that it can be a win-win scenario for all stakeholders if uncertainty in policy-making and taxation for skill-based online gaming are resolved at the earliest. In doing so, the industry will attract increased FDI and growth, therefore enhancing consumer interest and tax revenue. This in turn will help the government in the long term and make India a dominant global force in AVGC.