The Goods and Services Tax (GST) Council has announced that bets placed in online gaming, horse racing, and casinos will now levy a 28 per cent tax at full value. The effective date for the 28 per cent GST levy on online gaming will be announced after amendments to GST law, said Finance Minister Nirmala Sitharaman after the 50th GST Council Meeting.
Sitharaman said the decision to levy 28 per cent GST on online gaming, casinos, and horse racing was not aimed at killing the industry but was made considering the "moral question" that it cannot be taxed at par with essential commodities.
How The 28 Per Cent GST Will Impact Online Gaming:
After the implementation of new GST rules, users will have to pay Rs 28 per Rs 100 spent on an online game. The tax on online gaming would be imposed without making any differentiation based on if the games require skill or based on chance.
Online gaming companies said that the new GST norms will limit their ability to invest in new games, impact cash flows and business expansion.
The decision will be a major setback for the fantasy gaming industry, which was expected to cross Rs 25,000 crore in revenue by 2027.
The All India Gaming Federation (AIGF), which represents companies like Winzo, Zupee, GamesKraft, and Nazara, described the decision as unconstitutional, irrational, and egregious.
"The decision ignores over 60 years of settled legal jurisprudence and lumps online skill gaming with gambling activities. This decision will wipe out the entire Indian gaming industry and lead to lakhs of job losses, and the only people benefiting from this will be anti-national illegal offshore platforms," AIGF CEO Roland Landers said.
Online gaming companies have requested the government and the GST council to charge 18 per cent GST on their segment instead of the 28 per cent recommended by the Group of Ministers.
Impact on FDI
Joy Bhattacharjya, director general of the Federation of India Fantasy Sports (FIFS) said, the decision will severely impact the $2.5 billion of FDI (foreign direct investment) already invested and jeopardise potentially any further FDI in the industry.
In addition, the decision will shift users to illegal betting platforms, leading to user risk and a loss of revenue for the government, Bhattacharjya said.
Aaditya Shah, CEO of IndiaPlays said, "The implementation of a 28 per cent tax rate will bring significant challenges to the gaming industry. This higher tax burden will impact companies' cash flows, limiting their ability to invest in innovation, research, and business expansion".
He added that skill-based games and apps engaged in betting or casinos should not be treated in the same manner.
According to the E-Gaming Federation (EGF), a tax burden where taxes exceed revenues will make the online gaming industry unviable and boost black market operators at the expense of legitimate tax-paying players. Its members include Games 24X7 and Junglee Games.
BharatPe co-founder Ashneer Grover, who had recently launched his own fantasy gaming company named Crickpe, slammed the government for imposing 28 per cent GST on the online gaming industry.
Grover said that this murders the fantasy gaming industry and it is time for entrepreneurs to enter politics or the government will do the same for every industry.
However, Nazara Technologies expects the decision to have a minimal impact on its revenue. The company said the tax will apply only to the skill-based real money gaming segment of its business, once implemented. The category contributed a moderate 5.2 per cent of its FY23 revenue.
The gaming and sports media company added that it will proactively take measures to reduce any potential impact on this segment.
Impact On Online Gaming Stocks
On Wednesday, 12 July, shares of Nazara Technologies, Delta Corp, Zensar Technologies and OnMobile Global plunged 1-20 per cent.
Shares of Delta Corp even hit the 20 per cent lower circuit limit at Rs 197.45. Nazara shares tanked 6 per cent while those of OnMobile Global slumped 5 per cent. Zensar Technologies shares fell around 1 per cent in early trade but recovered soon after.
