Indian Gaming Industry in Turmoil

The 50th GST Council meeting in India has sent shockwaves through the gaming industry as it announced a significant tax increase of 28% on online gaming, horse racing, and casinos. This move, aimed at ensuring uniformity and equal treatment, has triggered heated debates and raised concerns about the future of gaming startups.
 

The decision came after a thorough review by the Group of Ministers (GoM), which was tasked with addressing taxation issues related to these sectors. The GoM had previously presented its initial report during the 47th GST Council meeting, but further deliberations led to the preparation of a second report. During the discussions, the GoM faced the challenge of determining whether the tax should be based on the full-face value of bets placed or on the Gross Gaming Revenue (GGR).
 

After carefully considering the 2nd report, the GST Council made a decisive move to impose a 28% tax rate on online gaming, horse racing, and casinos. This taxation would apply to specific elements within each sector. For casinos, it would be levied on the face value of the chips purchased. In the case of horse racing, the tax would be imposed on the full value of bets placed with bookmakers or through the totalisator. Online gaming bets would also be subject to taxation based on their full value.
 

The connection between this taxation decision and the IT rules for online gaming intermediaries, announced by the IT Ministry in April of that year, raised eyebrows. These rules allowed for the creation of self-regulatory bodies to oversee permissible online games. The GST Council’s decision aims to align the taxation aspect of online gaming with the IT regulations set by the Ministry of Electronics and Information Technology (MeitY). Under this amendment, online gaming companies would be taxed without distinction based on whether the games require skill or are based on chance. Furthermore, the definition of actionable claims in the GST law would be modified to accommodate these changes.
 

Union Finance Minister, Ms Nirmala Sitharaman, clarified that the amendment solely focuses on taxation. She emphasized that the Council’s decision aligns with the regulatory framework envisioned by MeitY. The amendment would include online gaming and horse racing in Schedule III of the GST Act under actionable claims, thus subjecting them to a 28% tax rate based on their full face value.
 

The gaming industry, however, expressed strong opposition to the 28% tax rate, fearing its catastrophic consequences. Malay Kumar Shukla, Secretary of the E-Gaming Federation, called it an “extremely unfortunate decision,” highlighting that such a high tax on full face value would lead to an almost 1000% increase in taxation. According to industry players, this taxation imbalance threatens the viability of the online gaming industry, providing an advantage to illicit operators in the black market and undermining the legitimacy of tax-compliant players. The reputation of the industry could suffer, and its ability to survive in the long run may be compromised.
 

The gaming industry appeals to the government to consider alternative taxation models that reflect the unique dynamics and challenges of the online gaming sector. Collaborative efforts between the government and industry stakeholders could lead to a more favorable tax regime that supports growth, innovation, and responsible gaming practices.
 

On the other hand, state finance ministers expressed concerns about the growing addiction to online gaming, particularly among children, during the Council meeting. As a result, the decision to impose a uniform 28% tax rate was taken with the consensus of all states.
 

While it is crucial to acknowledge the industry’s concerns and ensure its long-term viability and competitiveness, the recent decision has been implemented without differentiation, encompassing both gaming and gambling platforms. This approach disregards the efforts of certain companies that have sought to establish a clear distinction between games of skill and games of chance, engaging in extensive lobbying endeavors to distinguish themselves from gambling platforms.
 

The implications of this tax hike are far-reaching for gaming startups in India. Many fear that the burden of excessive taxes could threaten their survival and hinder innovation. Startups that have invested heavily in building their gaming platforms may find it challenging to sustain their operations under the new tax regime. Additionally, the lack of differentiation between games of skill and games of chance may lead to further complications and legal challenges.
 

The gaming industry calls for a balanced approach to taxation, taking into account the sector’s intricacies and contributions to the economy. A collaborative dialogue between policymakers and industry stakeholders is essential to create a tax framework that fosters growth, safeguards responsible gaming practices, and ensures the industry’s long-term sustainability.
 

As the gaming industry braces for the impact of the new tax rate, the focus now shifts to finding common ground and crafting a taxation system that strikes a balance between regulatory compliance and the industry’s growth potential. The gaming landscape in India is undergoing a transformation, and the decisions made today will shape its future trajectory for years to come.