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India’s online gaming industry is broiling over the 28% GST blow it was dealt with post the 50th meeting of the GST council yesterday. While the FM emphasized that the intention behind this was not to “destroy the industry”, insiders claim that this decision will have exactly this impact on this space. 

Says Siddharth Sharma, SVP- Business Strategy, Head Digital Works (A23), “The new tax rate of 28% on Gross Gaming Value is an unexpected move by the GST Council, which will have far-reaching consequences for the industry and question its basic viability. Not only will this burden hinder the growth of this nascent industry, its application will compress new innovation and opportunities. It will also push users towards illegitimate betting and gambling operators that don’t follow the laws of the land.”

There is no doubt that the 28% GST will act as a major deterrent to the growth of India’s online gaming space, which grew from strength to strength during the pandemic. As per a recent FICCI-EY report on India’s media and entertainment sector, transaction-based online gaming is estimated to grow at a CAGR of 21% to touch Rs 183 billion by 2025. 

Moreover, it was also estimated to drive 79% of the total revenue generated from the online gaming space. But all of this will come to a screeching, abrupt halt post this. 

What does the decision mean? 

Currently, online gaming platforms pay 18% GST on their gross gaming revenue (GGR), and not on contest entry amount (CEA), which is the full value of the transaction. But now, the 28% GST will be levied on the full value of the bets you place on such platforms. 

Imagine this. You pay Rs 1,000 to enter a contest. In fantasy cricket contests on platforms like Dream11, MPL, this entire amount goes towards picking players and making a team. Post this announcement, your total payout will increase to Rs 1,280. The additional Rs 280 will be deducted as GST. 

Moreover, say you end up winning Rs 1,500 while playing. You will have to pay an additional 30% tax on your net winnings i.e. (Rs 1,500-1,000) i.e. Rs 500. This means you will end up paying Rs 150 more (30% of Rs 500) on your winning monies. 

“The rule is yet to come to effect, since only notification in this regard has been communicated. However, there is no denying that this change will push the online gaming space into an unorganized space”, says CA Davinder Singh. 

This dramatically increases the incidence of taxation on businesses (up to 1100%) and gamers (up to 300%), per industry experts. Additionally, as Mumbai-based CA Bhavesh Jindal pointed out, the single-biggest impact of this would be on the disposable/available amount people will have to invest in these games. 

Sunset before sunrise

As per the FICCI-EY report, India boasts of about 100-120 million real-money gamers, in addition to professional ones. The number of online gamers in India is projected to rise to 500 million in the next 2 years. 

According to Malay Kumar Shukla, Secretary, E-Gaming Federation, “This is an extremely unfortunate decision as charging a 28% tax on full face value will lead to a nearly 1000% increase in taxation and prove catastrophic for the industry. A tax burden where taxes exceed revenues will not only make the online gaming industry unviable but also boost black-market operators at the expense of legitimate tax-paying players, further undermining the industry’s image and capacity to survive. It is in addition to the loss of employment opportunities and the huge impact on marquee investors who are heavily invested in this sunrise sector”. 

Citing this as a killer move for the industry, Games 24 X 7 CEO and co-founder Bhavin Pandya thinks this move is in contradiction to government’s previous positive initiatives for the industry, which include proposals for online gaming rules and appointment of self-regulatory bodies (SROs) by the Ministry of Electronics and Information Technology (MeitY) and the Finance Bill 2023 amendments to the Income Tax Act.

“We are deeply distressed with the GST Council’s decision to implement an 28% GST on the Contest Entry Amount (CEA) as opposed to Gross Gaming Revenue, which is the international standard for the sector. The tax on CEA effectively creates a hostile environment for legitimate domestic platforms with an unrealistic tax burden and is counterintuitive to the measures that the government has taken to promote this sunrise sector. By imposing GST on CEA will render the legitimate online gaming industry unviable, effectively driving consumers towards offshore and illegal platforms that pay no taxes, resulting in loss of taxes and outflow of foreign exchange. Further, this will also lead to loss of employment for thousands working in this sector.”

“We urge the government to reconsider this decision and work with the industry stakeholders to find a more suitable taxation model that supports sustainable growth for the industry”, he signs off.