The GST Council in its 51st meeting on Wednesday, August 2, retained its decision to impose a 28 per cent tax on online gaming. However, Finance Minister Nirmala Sitharaman said the tax would be on the initial amount paid on the game and not on the total value of each bet placed. The gaming industry is still unhappy with the 28 per cent tax on online gaming, but tax experts see a silver lining and some relief for the industry.
‘Will Severely Impact Online Gaming Sector’: Industry Players
The All India Gaming Federation (AIGF), which represents over 120 online gaming companies, said, “We believe the decision by the GST Council of valuation on deposits will severely impact the online gaming sector and result in a situation where a majority of players, including the MSMEs will no longer be able to survive in the face of the increased tax liability of 400-500 per cent.”
350% Increase In GST: The Federation of Indian Fantasy Sports (FIFS) and the E-Gaming Federation (EGF), which represent 50 Indian online gaming companies, in a statement said, “The new tax framework, while clarifying and resolving uncertainty, will lead to a very burdensome 350 per cent increase in GST and set the Indian online gaming industry back several years. However, it will allow gaming companies a fighting chance to innovate and rebuild the foundation of gaming in India.”
The 51st GST Council on Wednesday decided to keep the 28 per cent tax on online gaming, casino and horse racing, and discussed the modalities to implement it. The 28 per cent tax is likely to be implemented from October 1 and will be reviews six months after its implementation.
To Impact Fundraising: Soham Thacker, founder and CEO of Gamerji, said, “As an industry, it is expected to affect online gaming both RMG (real money gaming) and non-RMG on their userbase revenues and overall gaming experience. The fact that entities located outside India and are providing online gaming services will also fall under GST is likely to affect the investors’ sentiment and future fundraising efforts.”
The GST Council on Wednesday recommended inserting a specific provision in IGST Act, 2017, to provide for liability to pay GST on the supply of online money gaming by a supplier located outside India to a person in India.
To Narrow Companies’ Margins: Rohit Bansal, founder of Super4, said, “For the smaller online gaming enterprises, the weight of this dual taxation could prove to be insurmountable. These businesses typically operate on slimmer profit margins and possess fewer resources when compared to their larger counterparts. The cumulative effect of these taxes could severely curtail their ability to maintain operations, invest in technological advancements, and provide enticing incentives to attract gamers.”
‘Some Relief For Online Gaming Sector’: Tax Experts
No Repetitive GST: Abhishek Jain, head (indirect tax) and partner at KPMG, said, “Alignment of major provisions for the valuation of supply for casinos and online money gaming with no repetitive GST on each bet placed, brings some relief to the sector. With stricter provisions for offshore gaming companies also being recommended would likely provide a level playing field for Indian companies.”
The finance minister on Wednesday said the 28 per cent GST on online gaming would be on the initial amount paid on the game and not on the total value of each bet placed. GST would not be applicable on the winnings which could be used to place further bets.
Tax on Deposits Not on Each Bet: Shashi Mathews, partner at IndusLaw, said, “Especially for online gaming, tax is proposed on the deposits made by the users and not on redeployed winning amounts. This is certainly a relief for the sector, from what was being anticipated post the last Council meeting.”
Saloni Roy, partner at Deloitte India, said, “Though the decision of charging online games at 28 per cent was not taken unanimously, however, the Government has given a minor respite to players by providing clarity that GST would be leviable only on the initial deposit amount (real money) and not on the value of each bet from the winning amount.”
No Differentiation Between ‘Game Of Skills’ and ‘Game of Chance’: Saket Patawari, executive director (indirect tax) of Nexdigm, said, “The GST Council has agreed to review the levy after six months. A conscious decision has been taken to not differentiate between ‘game of skills’ and ‘game of chance’ and therefore, an SLP (special leave petition) has been filed before the Supreme Court challenging the judgment of Karnataka High Court in GamesKraft Technologies Pvt. Ltd.”
Level-Playing Field With Companies Abroad: Ankur Gupta, practice leader (indirect tax) at SW India, said, “One silver lining for the industry is that the rates can be reviewed after six months of the implementation. By including VDA (virtual digital assets), they have plucked the overseas gaming platforms that have no base in India and operate only on cryptos or alike if they have an Indian customer base.”
He added that it will be interesting to see how the government will keep track of compliance by overseas players and how much effective blocking work as operating through changed IP addresses is a common phenomenon in the industry.
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