Online gaming companies, associations write to Centre to reassess 28% GST: Report

Over 130 online gaming companies and industry associations have approached the Centre urging it reconsider the 28 per cent GST on the full face value for online gaming. The companies have signed an open letter and sent it to the Centre urging for a “viable and progressive GST regime”, a report said on Saturday.

The companies have said that the proposal to charge 28 per cent GST on the full deposit value will halt the growth of the booming industry, The Economics Times reported.

“The proposal to charge GST on the full deposit value will reverse the growth trajectory of the industry. This would potentially have devastating implications (including shut down of businesses) for MSMEs and startups that may not have the capital reserves to withstand such a sharp tax increase,” the letter to the government stated.

The letter was signed by companies, including Nazara Technologies, Mobile Premier League (MPL) and its game development unit Mayhem Studios, Gameskraft Technologies, and WinZO Games.

Besides gaming industry bodies, including the All India Gaming Federation (AIGF), E-Gaming Federation (EGF), Federation of Indian Fantasy Sports (FIFS) and All India Game Developer’s Forum (AIGDF), have also signed the letter.

AIGF represents companies, such as MPL, Zupee, and Paytm First Games, whereas EGF represents companies including Games 24×7 and Junglee Games. FIFS is backed by platforms, such as Dream11, and Fantasy Akhada.

On July 11, the GST Council imposed a 28 per cent tax on online gaming, horse racing and casinos. The effective date for the 28 per cent GST levy on online gaming will be announced after amendments to GST law, said Finance Minister Nirmala Sitharaman after the 50th GST Council Meeting.

Sitharaman said the decision to levy 28 per cent GST on online gaming, casinos, and horse racing was not aimed at killing the industry but was made considering the “moral question” that it cannot be taxed at par with essential commodities.

This means that According to the GST Coucil, a gamer will have to pay Rs 28 for every Rs 100 spent in an online game. The game could be based on skill, or luck.

The companies said that the 28 per cent GST on full value would “debilitate potential investors”, both domestic and foreign, from considering the online gaming sector as a viable investment destination.

“It may be noted that the impact will not only be on attracting fresh capital in gaming but would have a far wider impact on the Indian startup ecosystem as a whole, as the majority of these financial institutions invest across sectors and a favourable regulatory landscape is one of the single most important drivers for FDI. In addition, the current $2.5 billion plus in investments is at stake basis this decision,” the letter said.

The companies unanimously said that the online skill gaming sector in India currently has a $20 billion enterprise valuation, and generates $2.5 billion in annual revenue.

The industry is expected to grow by 30 per cent compound annual growth rate (CAGR) to reach $5 billion in revenue by 2025, it added.

As per an EY-FICCI report, revenues of the online gaming segment in the country rose from Rs 79 billion in 2020 to Rs 119 billion in 2022, and are expected to touch Rs 153 billion by 2024. The country has also seen a sharp rise in new users, with the report pegging the number of paying gamers at 95 million in 2021.

Earlier this week, Revenue Secretary Sanjay Malhotra said the government’s decision to impose a 28 per cent tax on funds that online gaming companies collect from their customers will not need any further consultation or early review.

“There was no need to further consult the gaming industry and amendments to enable the tax will be brought in the monsoon session of parliament, which begins later this month,” Revenue Secretary Malhotra said.

“Unanimous, emphatic, equitable decision of GST Council on e-gaming. I am not the one to take this decision, but I don’t think there is any chance of a review so early,” Malhotra added.

Many experts and entrepreneurs criticised the government for bringing in such a tax following the decision.

Former Shark Tank judge Ashneer Grover wrote on Twitter, “RIP – Real money gaming industry in India. If the govt is thinking people will put in Rs 100 to play on Rs 72 pot entry (28 per cent Gross GST); and if they win Rs 54 (after platform fees) – they will pay 30 per cent TDS on that – for which they will get a free swimming pool in their living room come the first monsoon – not happening!”

In multiple tweets, Grover, who had recently launched his own fantasy gaming company named Crickpe, said the GST levy will murder the fantasy gaming industry and it is time for entrepreneurs to enter politics or the government will do the same for every industry.

Roland Landers, CEO of All India Gaming Federation, said that the decision of the government ‘ignores over 60 years of settled legal jurisprudence and lumps online skill gaming with gambling activities’.

“This decision will wipe out the entire Indian gaming industry and lead to lakhs of job losses, and the only people benefiting from this will be anti-national illegal offshore platforms,” he said.

Ankur Gupta, Practice Leader – Indirect Tax at SW India said 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.

However, only Nazara Technologies said the decision will have a minimal impact on its revenue. The company said the tax will apply only to the skill-based real money gaming segment of its business, once implemented. The category contributed a moderate 5.2 per cent of its FY23 revenue.

After the levy was declared, shares of gaming companies, such as Nazara Technologies, Delta Corp, Zensar Technologies and OnMobile Global plunged in the range of 1 to 20 per cent on July 12.

Shares of Delta Corp even hit the 20 per cent lower circuit limit at Rs 197.45. Nazara shares tanked 6 per cent while those of OnMobile Global slumped 5 per cent. Zensar Technologies shares fell around 1 per cent in early trade but recovered soon after on July 12.

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