28% GST will prove to be catastrophic for the gaming industry, say online gaming companies

Following its 50th meet in New Delhi, the Goods and Service Tax (GST) Council announced that it will levy 28% GST on the full value of online gaming, horse racing, and casinos. Further, the West Bengal GST Council Representative said that the Council decided to make an amendment as these are actionable claims.

The GST Council further agreed that there should be no distinction between a ‘game of skill and a game of chance’.

Not surprisingly, the gaming industry has expressed its dismay over the 28% tax and feels that this move will prove catastrophic for the industry.

Malay Kumar Shukla, Secretary, E-Gaming Federation:

“This is an extremely unfortunate decision as charging a 28% tax on full face value will lead to a nearly 1000% increase in taxation and prove catastrophic for the industry. A tax burden where taxes exceed revenues will not only make the online gaming industry unviable but also boost black-market operators at the expense of legitimate tax-paying players, further undermining the industry's image and capacity to survive. It is in addition to the loss of employment opportunities and the huge impact on marquee investors who are heavily invested in this sunrise sector. Furthermore, online gaming is different from gambling, and the Supreme Court and various High Court decisions have reaffirmed the status of online skill-based games as legitimate business activity protected as a fundamental right under the Indian constitution. While the industry was quite optimistic with the new developments including amendments to the IT rules and implementation of TDS on net winnings, all this will be moot if the industry is not supported by a progressive GST regime. We will wait for further details to assess the situation and evaluate our approach.”

Joy Bhattacharjya, Director-General, Federation of Indian Fantasy Sports (FIFS):

“We are disappointed that the GST Council and authorities have chosen to apply 28% GST on the total entry amount, including prize money. As pointed out by FIFS and many of its members on numerous occasions, a change in valuation to tax on the total consideration will cause irreversible damage to the industry, loss of revenue to the exchequer, and loss of employment for lakhs of skilled engineers. Needless to add, this decision will have a chilling effect on the $2.5 billion of FDI already invested by investors and jeopardise potentially any further FDI in the sector. Further, this decision will shift users to illegal betting platforms leading to user risk and loss of revenue for the government. We humbly request the GST Council and the Government of India to reconsider this decision.”

Mitesh Gangar, Co-Founder & Director, PlayerzPot:

“The GST council’s decision to levy 28% GST on total face value on online gaming will corner the gaming industry in a big way. The overall operations will not be feasible. The high tax burden will completely restrict the cash flow, limiting a company’s ability to invest in research, innovation, expansion or survival. The higher burden will also put a blocker on India’s massive gaming industry and deter the new player from entering the industry. The rising gaming economy will take a big hit and trigger economic stress, restrict job creation and curtail economic growth within the sector.”

Sagar Nair, Co-founder, and CEO of Qlan, the Gamers' Social Network:

“The decision of the GST council to impose a 28% tax will have a significant impact on the online gaming industry, which unfortunately includes the Esports community. While we understand that the government needs to impose such measures on casinos, horse racing, and gambling, the higher tax rate is not justified for the competitive gaming community. It can discourage new players from entering the market as their hard-earned earnings generated through their efforts just like mainstream athletes will be taxed on the same level as those involved in gambling and other such practices. For the Esports industry to continue its unprecedented growth and recognition on the international stage, it is vital for the government to treat Esports as a separate category with reasonable tax rates that would support the development of the sector.”

Rohit Agarwal, Founder & Director, Alpha Zegus:

“Yet again, esports being included in the same domain as online gaming, horse racing, and casino, has put our industry at a major disadvantage. While the government might have fair reasons to impose higher GST on horse racing and casino winnings, imposing the same rules on an industry like esports doesn’t seem fair. Esports does not only have a ‘win or lose’ situation basis luck, but has a very big element of skill that determines the outcome of the game. This is not what I expected, and our fight to separate esports from other labels still continues.”

Aaditya Shah, COO of IndiaPlays:

"The GST council's recent stance is both surprising and disappointing. Despite the government's previous positive steps and clarifications regarding the skill-based gaming industry, such as clarification about TDS on winnings and establishing self-regulatory bodies, this new decision contradicts and undermines those efforts. As of 2022, the revenue generated by the Indian online gaming industry has already surpassed $2.8 billion, and it is projected to reach $5 billion by 2025, indicating an annual growth rate of 28-30%. The number of gamers in India currently stands at 420 million, and this figure is expected to experience exponential growth by 2025. Additionally, there are approximately 1,300+ gaming startups in India, highlighting the industry's potential for unlocking further growth. However, imposing a 28% GST on anything other than our gross revenue will have adverse consequences. It would be highly unjust to burden the industry with such a significant tax. Not only would this decision impede the industry's progress, but it would also put millions of jobs at risk.."

Siddharth Sharma, SVP- Business Strategy, Head Digital Works (A23):

“The new tax rate of 28% on Gross Gaming Value is an unexpected move by the GST Council, which will have far-reaching consequences for the industry and question its basic viability. Not only will this burden hinder the growth of this nascent industry, its application will compress new innovation and opportunities. This decision does not take into account the pleas of the industry, global precedents, and even counters the favourable regulatory environment being built up for online gaming in recent months. Businesses have a legitimate concern that this move will push users towards illegitimate betting and gambling operators that don't follow the laws of the land.”

Akshay Khandelwal, Founder, Bowled.io:

"This is a significant event for the online gaming industry; we can’t say it is entirely unexpected. If you consider the macro outlook, India is the youngest nation in the world (600M+ population <25 YO) with more than 300M active gamers. The gaming industry in India was expected to grow at 22.65% CAGR from 2022-2027.

On a global scale, in 2022, the revenue generated by the gaming industry (170 billion USD) was bigger than the revenue generated by the movie industry and music industry combined (73.9 billion). With this kind of opportunity and moment, India has a real shot at becoming the “gaming factory of the world”.

For India, online gaming is perhaps the only sector that has produced multiple profitable unicorns. The decision to further regulate the industry puts margin pressures on the incumbents and makes the traditional player economics difficult to sustain, forcing them to reconsider their business models and innovate.

At the same time, it balances the playfield and presents an opportunity for the next generation of companies like ourselves to introduce newer business models. While, in short term, it does impact everyone in the industry, including ourselves, we almost see it as the beginning of a new era for the Indian gaming industry."