Implementing 28% GST on online gaming ‘disastrous’, say experts

The GST Council's recent decision to levy a 28 per cent tax on the turnover of online gaming companies has drawn mixed reactions. It has sparked widespread dissatisfaction among industry experts and tax professionals with many describing the move as a ‘disastrous’. Another segment considers it a timely move.

India's gaming industry has witnesssed sharp growth in recent times with a CAGR of 28-30 per cent. The need for tax imposition on the segment by the GST Council has been explained as necessary by some experts. Amit Gupta, of SAG Infotech, appreciated the move, saying "Most of these gaming apps are Chinese and they are taking huge money out of the Indian economy because of this addiction. Now the only challenge is to find the equilibrium to foster continued growth of the gaming sector".

But not all seem to be happy. Ashneer Grover, who recently launched a cricket fantasy gaming platform 'Crickpe', said startups need a voice in politics.

"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!" Grover said in a tweet.  

Reacting to Grover's tweet, Vivan, a Twitter user, said the government should stop marketing itself as startup-friendly. Jay, another user, said "its time for high-net-worth individuals to move to the UAE and save on personal income tax".

After its 50th meeting, the GST Council decided to impose a 28 per cent tax on the turnover of online gaming companies, horse racing and casinos. Union Finance Minister Nirmala Sitharaman said the panel decided to levy a 28 per cent GST on the face value of payments made for playing online games, bets in racing, and on casinos.

A Group of Ministers (GoM) recommended the tax rate for casinos, horse racing, and online gaming. The GoM considered whether to impose a 28 per cent GST on bets, gaming revenue, or platform fees. The finance minister decided to levy the tax on the entire value. The tax on online gaming companies won't differentiate between skill-based or chance-based games.

"We had high hopes for the GST Council to adopt the GGR model, aligning with international practices. However, the potential elimination of the distinction between games of chance and games of skill could have a profound impact on the industry," Kishore Kumar, GST expert told Republic.

"What remains to be seen is that the change is going to apply prospectively or have a retrospective impact," he added.

Taxation practices outside India

United Kingdom

Remote gaming duty (RGD) is charged at a rate of 21 per cent of a gaming provider's profits from remote gaming with UK customers.

Profit for each accounting period is calculated as the difference between the total amounts of money due to the provider (gaming payments) from UK customers for participating in ordinary gaming and the pooled prize gaming amounts paid out separately for prizes or the amount of gaming payments that go into the pool to become winnings.

Austria

The basis of the calculation and tax rate for gaming taxes depend on the type of gaming offered.

For electronic lotteries (online games of chance), the tax rate is 40 per cent of the gross gaming revenue (GGR), which is calculated as stakes minus winnings.

For slot machines in casinos, the tax rate is 30 per cent of the net gaming revenue (NGR), which is calculated as GGR minus value-added tax (VAT).

Estonia

The tax rate in Estonia varies based on the nature of the game and medium. For organising games of chance and games of skill like remote gambling, the tax rate is 5 per cent of the amount received from bets minus prize money.

In the case of a commercial lottery, the tax rate is 18 per cent of the total amount of the prize pool.

"A balance is crucial for a healthy and sustainable gaming industry, despite the challenges it may bring. We aim for growth, competition, job creation, and long-term prosperity." said Aaditya Shah, COO of IndiaPlays.