The July 11, 2023, announcement by Union Finance Minister Nirmala Sitharaman regarding the imposition of a 28% Goods and Services Tax (GST) on the turnover of online gaming, horse racing, and casinos has sparked significant debate and concern within the gaming industry.
The decision to tax the entire value of online gaming activities, irrespective of skill or chance-based games, has raised questions about its impact on the industry's viability, cash flows, and job prospects.
This article aims to analyse the potential outcomes of this taxation policy and its implications for the gaming sector in India.
Controversial Taxation Policy
The decision to impose a flat 28% GST on the full face value of bets, rather than differentiating between the gross gaming revenue (GGR) and platform fees, has garnered criticism from industry executives, gaming associations, and legal experts.
The All India Gaming Federation (AIGF) argues that this decision disregards established legal precedents and erroneously equates online skill gaming with gambling activities.
AIGF CEO Roland Landers characterises the decision as unconstitutional and irrational, warning that it may lead to the collapse of the Indian gaming industry and result in significant job losses.
Challenges Faced By The Gaming Industry
The gaming industry in India is concerned about the potential repercussions of this taxation policy. Industry executives worry that the increased tax burden will hamper cash flows and compel companies to raise ticket prices, adversely affecting user engagement. This could potentially drive players towards unregulated offshore platforms, undermining the efforts of legitimate tax-paying gaming operators.
The E-Gaming Federation (EGF) emphasises that the tax burden exceeding revenues would render the online gaming industry financially unviable, impacting employment opportunities and causing distress for marquee investors.
Legal And Practical Implications
Legal experts argue that the proposal to tax bets in online gaming at 28% would necessitate substantial legislative amendments and might face legal challenges.
They highlight the need for a clear distinction between games of skill and chance, advocating for corresponding tax implications.
The proposed tax rate of 28% on online skill gaming is viewed by industry experts as disproportionate and lacking justification, in contrast to prevailing practices in leading international jurisdictions.
Critics argue that it represents a regressive step for the GST regime and fails to consider the survival of businesses in the gaming sector.
Impact On The Gaming Industry
Hoping for a pragmatic approach, the gaming industry expected an 18% GST on entry fees or platform charges only. However, subjecting gaming, casino, and betting services to a 28% GST on the total amount collected, including the portion distributed as prize money, has sent shockwaves through the industry.
Since operators typically retain 10% as their fee, the effective taxation on gaming activities would increase from 1.8% to 28%, presenting a significant challenge for the industry. Legal experts anticipate potential legal challenges, arguing that the valuation of taxable supplies may violate provisions within the GST Acts.
The GST Council's decision to impose a 28% GST on the turnover of online gaming, horse racing, and casinos, without distinguishing between skill and chance-based games, has created uncertainty and apprehension within the gaming industry.
The industry's concerns regarding financial viability, cash flows, job losses, and the proliferation of unregulated offshore platforms are significant.
The potential legal challenges and the need for legislative amendments highlight the ongoing debate and uncertainty surrounding this taxation policy. Whether the government will consider revisiting this decision to strike a balance between generating revenue and fostering the growth of the gaming industry in India remains to be seen.