In a move set to agitate India’s skill-based online gaming industry, Finance Minister Nirmala Sitharaman announced a 28% GST levy on the total game value for online gaming, horse racing, and casinos yesterday, ultimately equating skill-based online games (non-gambling games) with online games of chance (gambling games) under India’s tax regime.
Online betting and gambling are currently taxed at 28% GST, while other games are taxed at 18% of gross gaming revenue. The new slab will come into effect once GST laws are amended, Sitharaman added.
“…There is no agenda to finish the online gaming industry,” said Sitharaman yesterday at the 50th GST Council meeting, continuously referring to gambling examples while answering a question on online gaming taxation. “We have to keep all businesses open—take casinos operating in Goa and Sikkim. Both are small states, and argued that these businesses impact our tourism industries. We discussed all of this, and it’s not just our position, every state felt it…[During the discussions a question that was asked was] Can the tax on casinos be less than the tax on food products?…There was a moral question discussed: on the one hand, we shouldn’t shut down the industry, but that doesn’t mean that we give them more incentives than essential goods…”
This conflation sharply departs from the popularised stance that online gaming and gambling are distinct and should be respectively regulated by the centre and states, repeatedly reiterated by no less than India’s Minister of State for IT Rajeev Chandrasekhar over the past few weeks. The same justification was used by the Indian government when it released rules in April regulating (and legitimising) online games. Like the GST Council, the rules also did away with the distinction between games of skill and chance, outlawing games involving wagering instead, a move that the industry has not vocally challenged much.
Legal experts from Tamil Nadu have hinted that the state may challenge the rules in court, as regulating games (whether gambling or otherwise) may fall under the states’ ambit. The rules also surprisingly treat online gaming platforms as intermediaries even though they are typically considered publishers worldwide.
From our archives: “Immediate And Existential Threat To The Entire Gaming Ecosystem”: A Lawyer’s Concerns On Possible Tax Changes
MediaNama’s Editor Nikhil Pahwa says: The effect of 28% GST on online real money gaming/gambling can perhaps be equated with TDS levied on crypto. At the time the crypto regulation came in, there were a large number of Indians from small towns putting small amounts of money into crypto to make higher returns. The TDS took the heat out of the crypto ecosystem to the extent that there was a drastic decrease in transactions and it hasn’t really recovered since. Many crypto founders have even moved out of India. The real money gaming/gambling founders, unlike crypto, have nowhere to go, perhaps except court.
How does this ‘play’ out?: In short, the high taxes will shrink winnings, leaving little incentives for users to play, and slowly hurting the industry’s revenues. Here’s how: the GST levy comes after the government’s introduction of 30% TDS on net winnings for online games earlier this year. This means that 28% GST will be levied on the total pool amount levied for a game, 30% TDS on net winnings, and the platform will also charge its own participation fees. So, if two players contribute Rs. 100 each to a pool (making the pot Rs. 200 in total), where the platform charges a 15% participation fee for each user:
A. The government can make 56 + 12 as taxes, being 68.
B. A gaming platform can make 22.
And the individuals in question have a payoff profile that says, “I can win 10 but lose 100” !!
Welcome to la-la land!
Clearly this construct is unsustainable and will have to change
— n jayakumar (@jakesprime) July 11, 2023
The industry is unhappy, says the move will embolden black market: “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,” said Malay Kumar Shukla, Secretary of the industry body E-Gaming Federation, in a statement to MediaNama.
“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,” Shukla continued. “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.”
BharatPe Founder and Shark Tank judge Ashneer Grover tweeted a eulogy for the industry instead:
RIP – Real money gaming industry in India. If the govt is thinking people will put in ₹100 to play on ₹72 pot entry (28% Gross GST); and if they win ₹54 (after platform fees)- they will pay 30% TDS on that – for which they will get free swimming pool in their living room come…
— Ashneer Grover (@Ashneer_Grover) July 11, 2023
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