In a recent announcement, India’s Finance Minister, Nirmala Sitharaman, revealed a change in the taxation approach for online gaming companies, offering some relief to the industry.
The decision comes after last month’s decision to impose a 28 percent tax on the funds collected by online gaming companies from their customers for every bet, which had a significant impact on the burgeoning $1.5 billion industry, supported by global investors.
The new tax policy will now levy taxes on the total funds deposited by players to participate in online games, rather than taxing every individual bet. This revised approach is seen as an effort to address the concerns raised by more than 100 gaming companies and top investors, including Top Tiger Global and Peak XV (previously known as Sequoia Capital India), who wrote to the government, urging a reconsideration of the previous decision.
The Goods and Services Tax (GST) Council, comprising finance ministers from all Indian states and chaired by Sitharaman, made this decision. The tax is scheduled to be implemented from October 1, with a commitment to review the decision within the next six months.
While the revision in tax policy may provide some relief to the online real money gaming sector, some industry experts believe that the 28 percent tax rate could still pose challenges for smaller players to survive. Start-ups and smaller companies in the segment might still be adversely affected once the higher GST rate comes into effect.
Sudipta Bhattacharjee, a partner at Khaitan & Co, emphasized that while the revised approach may bring some relief to the industry, there is a concern that smaller players might face difficulties coping with the higher tax rate. The online gaming sector in India has been witnessing rapid growth and attracting significant investments, and the government’s decision aims to strike a balance between tax revenues and supporting the industry’s growth.
The decision to revise the tax policy for online gaming companies reflects the government’s willingness to listen to industry stakeholders and adapt its approach to foster a conducive environment for the gaming sector while also ensuring adequate tax revenue for the country. As the online gaming industry continues to evolve, it remains to be seen how the new tax policy will impact various players in the sector in the coming months.
In the 51st GST Council meeting, the decision to levy a 28 percent GST on gross value collected from online gaming has sparked strong criticism from industry players. They argue that taxing GST on deposits rather than the technology platform commission will render the unit economics unviable, jeopardizing 80 percent of the industry, with MSMEs and startups being the most affected.
Industry players express concerns over the potential rise of monopolistic play due to the 400 percent increase in taxes, claiming that reasonable taxation could protect India’s vast population of over 500 million internet consumers from illegal offshore products.
The Federation of Indian Fantasy Sports and E-Gaming Federation issued a joint statement, welcoming the tax framework’s clarity but highlighting the 350 percent increase in GST, which they fear will set the Indian online gaming industry back several years. Despite this, they believe the new framework provides gaming companies an opportunity to innovate and rebuild the foundation of gaming in India.
The GST Council has agreed to review the tax rate and valuation decisions after six months of implementing the amendments, offering some hope to the industry.
Further clarifications were made to allay confusion surrounding the issue. The GST will apply to the entire sum collected upfront, but proceeds from winnings won’t be taxed, which has been seen as a welcome clarification by experts.
In addition, offshore online gaming companies will be required to take registration and comply with GST regulations, and non-compliance could result in the blocking of such sites.
The value of supply for online gaming and casinos will be based on the amount paid or payable to the supplier by or on behalf of the player, excluding the amount entered into games and not on the total value of each bet placed, as per the recommendations by the GST Council. This ensures that the tax is levied on the amounts received by online gaming platforms or casinos, addressing concerns about individual bets being taxed.
Overall, the industry remains concerned about the impact of the decision on the growth and viability of the online gaming sector in India.
