28% GST on online gaming is a big setback for the entire industry

GST Council, the body that decides on GST rates, has decided to levy a 28 per cent GST on online gaming, horse racing, and casinos, which has sparked instant outrage from the online gaming industry.

The decision was taken at the 50th meeting of the GST Council, which was held on July 11. The GST Council said its decision to levy tax on online gaming was taken after careful consideration and it believed that this will help to regulate the online gaming industry and ensure that it is fair and transparent.

Sudhir Mungantiwar, Maharashtra forest cultural and fisheries minister, said the council has decided to do away with the distinction of game of skill and chance in case of online gaming. 28 per cent tax would be levied on the full face value of bets, Mungantiwar said. Mungantiwar further said that the council has also approved setting up appellate tribunals.

The decision to levy GST on online gaming has been met with mixed reactions. Some people have welcomed the decision, saying that it will help to level the playing field between online gaming companies and traditional gaming companies. Others have criticized the decision, saying that it will increase the cost of online gaming for consumers and discourage the development of the online gaming industry in India.

Ankur Gupta, Practice Leader – Indirect Tax at SW India weighed in on the imposition of the tax on online gaming. He feels that this will be a major setback for Indian players as they are likely to see several notices being issued with a lot of litigation.

“Ignoring the long-time demand of the gaming industry, levying a 28% tax rate on the gaming industry will be a big setback for Indian players. We will need to see the fine print of notification if any exceptions are created. We might immediately see notices being issued to the gaming players for differential tax and with this new series of litigation,” Gupta said.

With the advent of technology and the use of handheld devices, the online gaming market is fast growing at US$ 3 billion with more than 400 million users and is expected to grow rapidly in the next half a decade. Therefore, it was important to put taxability at par with global tax rates so that the Indian industry remains competitive, he added.

“In most countries the online gaming industry is taxable more or less at par with the current taxability of 18%, therefore, it’s a disadvantage for Indian game companies if the taxability moves to 28%.Even on the valuation, the taxability seems to be on the face value and not on margin / platform fee. Taxing the entire pool value will adversely impact the customers as well as they would get less playable value,” Gupta further said.

While shedding some light on how the tax is going to affect the online gaming segment, Shivani Jha, Tech Policy Lawyer and Director, EPWA (E-Gamers and Players Welfare Association), “With so many regulatory and judicial developments in the sector, it seemed obvious that the GST Council will not tax gamers at par with the gamblers. This development indicates an increase from Rs 1.8 per Rs 100 spent on a game to Rs 28 rupees per Rs 100 spent. This will not only discourage players from playing, the professionals for whom it’s a livelihood will be burdened by taxation. It may also force them to play on offshore platforms, and the whole vision of creating a digital progressing gaming ecosystem seems blurry at this point.”

Criticizing the decision by the GST Council, Kriti Singh, Chief of Staff, The Dialogue said that the 28 per cent GST will curtail the skill gaming sector’s potential and create entry barriers for startups, impacting the vision of making India an online gaming hub.

Kishore Kumar, Lead, Indirect Tax, Taxmann said, “India’s gaming industry which has witnessed a remarkable growth in recent times and is growing at a CAGR of 28-30% is saddled with the decision taken in the 50th GST Council Meeting with regard to its taxability. The GST council has proposed to levy GST @ 28% on the full value of gaming at par with levy on lottery and horse racing. India is probably the only Country to levy GST on full face value on all categories of online games. The blanket proposal to levy GST on full face value on online gaming will possibly put an end to the sub-judice debate of ‘game of skill’ vs ‘game of chance. This change will bring game of skill at par with wagering contracts which are in the nature of gambling and betting.”

Shilpy Chaturvedi, Partner, Deloitte India said, “Online gaming industry has been waiting for the final recommendation of the GST Council with respect to tax rate and valuation, with a bated breath. Finally, GST Council has proposed to increase the tax rate to 28% rate and that to on the entry amount particularly for real money games. It will be interesting to see the business impact for the online gaming sector considering that this sector has been touted to have significant growth potential.”

Rajat Bose, Partner, Shardul Amarchand Mangaldas & Co. said, “The GST council has decided to levy GST @28% on full face value on online gaming, casinos and horse racing. It appears that the distinction between games of skill and chance has been done away with. This is a setback for Indian gaming industry as they were expecting that at least the levy will be on the margin and not on full face value. The proposed taxation regime for this industry is likely to dent the growth of the industry.” BusinessToday