How will the 28% GST on online gaming impact the industry?

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HIGHLIGHTS

  • Council deferred GoM report for now
  • The online gaming industry is still in its infancy – Nitish Mittersain, Nazara Technologies
  • Tax Levy Uncertainty Hovering Over Industry – Tech and Gaming Lawyer Jay Sayta

New Delhi: The TSG board held the first session of its meeting on June 28 in Chandigarh, with the second session scheduled to take place on June 29. The agenda of the meeting is to rationalize the tariffs of the existing positions. One of the main reports to be considered in the next session is the GoM (Group of Ministers) report.

The report suggests making no distinction between a game of skill and a game of chance. Keeping this in mind, online gaming, casinos and horse racing may soon be subject to 28% GST.

The group of ministers, led by Chief Minister of Meghalaya, Conrad Sangma, has recommended that online gambling be taxed at the full value of the consideration, and this includes a player’s participation fee.

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Sources say the board has postponed its decision to accept the report, meaning online gaming could still be in the 18% bracket. But what will be the impact of the 28% slab, if the report is accepted?

Impact on the Indian online gaming market?

India’s online gaming market is worth $2.2 billion. Nazara Technologies boss Nitish Mittersain says, “India’s gaming industry is in its infancy. It will continue to grow with or without taxation. The company is the country’s first publicly traded game company.

The rate change may hamper the expansion and growth of online gaming companies. Having smaller prize pools for fantasy sports businesses will impact their commissions and return revenue. Due to higher prices, existing paying customers might leave gambling platforms.

This will allow foreign players to enter the market, which can lead to gray market substitutes that can generate black money.

Talking about the details of the change, according to sources, the tax will be charged on the gross value of the games. It includes all expenses incurred / all money players wager in the game as opposed to current earnings. This means that the tax must now be paid on the total amount, and no longer just on the income that companies make as part of their commission. It is said to increase overall taxes by 900%.

It also raises the only doubt that industry players ponder. “The uncertainty is due to the lack of clarity on how the tax will be levied. No one is opposed to paying taxes, but everyone wants to know who will bear the brunt,” said Jay Sayta, a lawyer specializing in tech and games, while talking to ET Now. The report is not in the public domain, so the question hangs over everything.

Other challenges for the online gambling industry in India:

Gambling laws in India remain dated. On top of that, the industry is constantly changing and evolving. Thus, it becomes increasingly difficult to reform the laws to support these changes. The application of gambling laws to online structures remains complex.

States also have differing views on online and physical versions of real-money gambling, making it difficult to enforce the law. Advertising is prohibited for foreign online betting platforms in India, which limits their exposure to Indian audiences.

The outcome of the meeting will bring out the details of this rate change and whether players’ fears will come true.