The $3-billion Indian online gaming industry caught the eye of the world. But the 28 per cent GST on real-money gaming has brought its dream run to a screeching halt
Before the GST upheaval, the online gaming industry in India was on an upward trajectory. According to a report by the eSports Players Welfare Association (EPWA) and Vinayaka Mission’s Law School (VMLS), the number of online gamers grew by 12 per cent to 507 million in FY22 from 450 million in FY21. "Gaming [in India] has become a part of the mainstream and entertainment industry," said Krafton India CEO Sean Hyunil Sohn at an event in August. Sohn, whose firm is behind the popular BattleGrounds Mobile India game
Earlier, online games of skill attracted 18 per cent GST on the platform fee or gross gaming revenue (GGR) while games of chance were taxed at 28 per cent. Now, both games of skill and chance attract 28 per cent GST on the full face value of bets
Players will have to pay both income tax and GST. In this instance based on calculations by Nangia Andersen LLP, of the Rs 1,100 in a player’s wallet (contest entry amount), Rs 376 post winnings would go towards taxes
The online gaming industry had long been embroiled in a contentious tax debate. Experts note that the rate as well as value was always an area of debate. The industry had contended that the taxation should be on the platform fee, which is globally accepted. The definition of the game of skill and game of chance was also a matter of contention
A game of skill is determined by whether it involves real skills of the player and includes online games like carrom, chess, etc. These games attract GST of 18 per cent on gross gaming revenue if no money is involved. A game of chance relies primarily on the luck of the player and unpredictable outcomes and is seen to be like betting and gambling. It attracts a GST of 28 per cent on the full value of bets
The implementation of the 28 per cent GST had an immediate and profound impact on the online gaming industry. Many businesses struggled to cope with the increased tax burden, leading to workforce reductions and operational challenges. Mobile Premier League (MPL) said that it is laying off nearly half its workforce. Co-founders Sai Srinivas and Shubh Malhotra cited the substantial increase in the tax burden, which was estimated to be as high as 350-400 per cent. Entrepreneurs in the sector expressed concerns that the high tax rates would severely restrict cash flows, hindering investments in research, innovation, expansion, or even survival for many companies
Tax authorities intensified their scrutiny of the online gaming sector, leading to a series of investigations and notices being issued to various companies. The Directorate General of GST Intelligence (DGGI) established a dedicated cell to monitor the GST compliance of foreign online gaming firms. The aftermath of the Supreme Court's stay on a Karnataka High Court order, which quashed a substantial GST demand on an online gaming firm, further emboldened tax authorities to pursue similar cases. Notices totaling nearly Rs 1.5 lakh crore were being sent to several firms such as Dream11, Games24x7 and Head Digital Works
Stakeholders in the gaming industry stressed the importance of finding a middle ground with the government and proposed alternative tax frameworks. “The real impact of the tax will be felt in some time, [but] the industry would like to come to a middle ground with the government while advocating for a tax on gross gaming revenue,” said Games24x7 Co-founder and CO-CEO Trivikraman Thampy
Industry experts and leaders acknowledged the necessity to navigate the current situation carefully in light of the potential of the global gaming industry. “Given India’s status as a global IT powerhouse, achieving a 5-10 per cent global market share [in gaming] should be well within reach, unless hampered by excessive regulation,” said Skill Online Games Institute President Amrit Kiran Singh
From the UK to Portugal, check out how indirect tax treatment of online gaming plays out in various countries. Industry players contend that the GST rate in India is much higher than in other countries
As per a Deloitte-FIFS report, the size of the Indian online gaming industry in FY27 is likely to be $8.6 billion compared to $2.6 billion in FY22 and $0.54 billion in FY16. While the industry grapples with the immediate consequences of the GST implementation, the uncertainty surrounding the future trajectory of the sector remains palpable. Entrepreneurs and stakeholders remain cautiously hopeful, yet the full implications of the tax changes and their long-term effects on the industry are yet to be fully comprehended
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