Goods and Services Tax Council: Impact on Online Gaming Industry

Goods and Services Tax Council has agreed to levy 28 per cent GST on all the three supplies, vis a vis Online Gaming, Horse Racing and Casinos, said WB finance Minister.

Goods and Services Tax Council Agrees To Tax Online Gaming At 28%

“Most players in the online gaming industry are startups and they won’t survive 28% GST,” says Joy Bhattacharjya, the Director General of the Federation of Indian Fantasy Sports. Adds, lot of consumers will move to foreign players for online gaming.

Proposed 28% GST on the growing online gaming industry, defies the guiding principles of taxation.

It’s time for policymakers to reconsider their moves, ensuring the game of online gaming remains fair, engaging, and rewarding for all.

Goods and Services Tax Council, headed by Union Finance Minister Nirmala Sitharaman is all set to meet tomorrow and take a call on various issues like taxing online gaming, high-end vehicles, as well as horseracing and casino activities.

The Goods and Services Tax Council: Impact on Online Gaming Industry

The Goods and Services Tax (GST) Council, in its 50th meeting held in New Delhi, has decided to impose a 28% GST on online gaming, horse racing, and casinos based on the full value.

The council unanimously agreed that there should be no distinction between games of skill and games of chance when it comes to taxation. While the Group of Ministers (GoM) had previously agreed on imposing taxes on these activities, there was a lack of consensus regarding online gaming.

The state of Goa proposed a lower tax rate of 18% on platform fees, but the council has disregarded this proposal.

The decision to impose a 28% GST on the full value of gaming, horse racing, and casino winnings is expected to have a significant negative impact on the gaming industry.

Industry experts believe that online gaming companies will be severely affected by this decision.

Parag Mehta, a Partner at N.A. Shah Associates, stated, “GST of 28% on the full value of gaming, horse racing, and casino winnings will be a major damper to the gaming industry. The online gaming companies will be hit in a big way.”

Aaditya Shah, the COO of IndiaPlays, expressed concerns that this decision will not only hinder the development of new games and technologies but also undermine the competitiveness of online gaming platforms in the market.

Impact on the Gaming Industry

The imposition of a high GST rate on online gaming is expected to have several repercussions for the industry. Here are some key points to consider:

1. Financial Burden: Online gaming companies will face increased financial burden due to the higher tax rate, which may impact their profitability and growth potential.
2. Reduced Innovation: The ability of gaming platforms to invest in the development of new games and technologies will be hampered, leading to a stagnation of innovation within the industry.
3. Competitive Disadvantage: Online gaming platforms operating in India will face a competitive disadvantage compared to platforms in other countries with more favorable tax regimes. This may result in a shift of gaming activities to offshore platforms.
4. Consumer Behavior: The higher tax rate may discourage some consumers from participating in online gaming activities, leading to a decline in user engagement and revenue for gaming companies.
5. Job Losses: The gaming industry in India has been a significant source of employment opportunities. The imposition of a high GST rate could potentially lead to job losses and negatively impact the livelihoods of individuals working in the sector.

Recommendations and Industry Response

The decision of the Goods and Services Tax Council has drawn criticism from various stakeholders in the online gaming industry.

A group of top online gaming firms, represented by the FICCI Gaming Committee, had urged the Central Board of Indirect Taxes & Customs (CBIC) not to increase the GST rate to 28%.

They argued that such a high taxation rate would be extremely detrimental to the survival of the online gaming industry, as businesses cannot thrive under such financial constraints.

The industry has suggested alternative measures to support the growth of online gaming in India. These recommendations include:

1. Tax Differentiation: Introduce a differentiated tax structure based on the distinction between games of skill and games of chance. Lower tax rates for games of skill would encourage the development of the skill-based gaming segment.
2. Collaboration and Regulation: Foster collaboration between the government and industry stakeholders to create a conducive regulatory framework that promotes responsible gaming practices and protects consumer interests.
3. Industry Recognition: Recognize online gaming as a legitimate form of entertainment and an industry with immense potential for economic growth and job creation.
4. Tax Incentives: Provide tax incentives to encourage investment in the online gaming sector, including incentives for research and development activities.

It remains to be seen whether the concerns raised by the online gaming industry will be addressed and whether the Goods and Services Tax Council will reconsider its decision based on the industry’s recommendations.

Conclusion: Goods and Services Tax Council

The decision of the Goods and Services Tax Council to impose a 28% GST on online gaming, horse racing, and casinos on the full value has raised concerns within the gaming industry.

The move is expected to have a detrimental effect on the industry’s growth, innovation, and competitiveness.

The industry has called for a differentiated tax structure and collaboration between the government and industry stakeholders to address these concerns.

It is crucial for policymakers to strike a balance between taxation and the industry’s growth potential while considering the broader impact on employment and economic development.

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