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GST Slab On Online Gaming To Be Decided Today, Will It Be Doomsday For Fast-Rising Industry?

The GoM is mulling 28 per cent GST on gross revenue of online gaming platforms who currently pay 18 per cent of net income.

The online gaming industry is on tenterhooks as GoM mulls 28% GST tax slab for operators.
The online gaming industry is on tenterhooks as GoM mulls 28% GST tax slab for operators. Screengrab

May 18 could be D-Day for the online gaming sector. More specifically, for the real money gaming domain that operates in India in various "skill-based" forms like fantasy cricket, rummy, poker, roulette, ludo, and even snakes and ladders! (More Sports News)

For years, the Centre has deflected the issue of gambling/betting to the states under whom the matter lies as per the Constitution. Online gaming has come up for discussion several times in both Houses of the Parliament. In December 2021, Vice-President Venkaiah Naidu even called skill-based games as "kill games" in the Rajya Sabha.

But government agencies like the Niti Aayog have only made half-hearted efforts to make the gaming industry fall in line and ensure that the common man was not duped by playing online game with stakes. Niti Aayog almost came close to giving fantasy sports a clean chit but received ‘objection’ from major online gaming operators. The matter even reached the PM’s office.

Unstoppable!

This 'leniency' and laid-back approach only made the gaming operators audacious. Riding court orders and the enormous grey in the interpretation of ‘skill’ versus ‘chance’ games, real money gaming operators continued to bat with freedom, impunity and thus, a huge slice of arrogance.

Some of India's biggest celebrities like cricket superstars MS Dhoni, Sourav Ganguly and Virat Kohli continue to promote online games played with stakes. Bollywood celebrities like Shah Rukh Khan, Varun Dhawan and Shraddha Kapoor also endorse gaming apps in a big way.

Top real money gaming operators like Dream11, Winzo, MPL, My11Circle spend big on cricket and work closely with teams playing in the Indian Premier League. Due to cricket played the entire year, they manage to grab a lot of eyeballs through huge media spends, especially on TV and digital medium.

More importantly, offshore betting companies have emerged during IPL 2022 and offering innovative ways to win cash prizes. Indian gaming companies see them as a major threat. This is another area of concern for the government.

Gamechanger?

Come May 18, the dynamics of online gaming operations could change. If the taxation rules are passed, it will seriously impact the desi companies.

The Group of Ministers (GoM) set up by the Union Ministry of Finance to look into Goods and Services Tax (GST) is all set to sign off on a recommendation that casinos, race courses and online gaming must come under the 28 percent GST slab.

The GoM is a powerful body comprising eight powerful ministers, led by the Chief Minister of Meghalaya Conrad Sangma. The GOM’s suggestions are usually not challenged by the GST Council which is headed by the Union Finance minister Nirmala Sitharaman and includes the finance ministers of all the states and Union Territories.

Online gaming companies currently pay 18 percent GST on Gross Gaming Revenue (GGR) or on the commission charged by the platforms from players. The GoM has proposed that GST should be charged on the full contest amount. Effectively, platform owners will have to shell out approximately six to 10 times of what they are currently paying. Bigger the operator, higher the GST they will pay. Smaller operators will find this unsustainable. 

The Debate

"We believe that imposing 28% GST, if it is done, on a sector with such potential will take away the viability of many operating businesses in the ecosystem. Secondly, Indian gaming companies have attracted unprecedented Foreign Direct Investments of USD 1.6 billion between August 2020 and September 2021," says Saumya Singh Rathore of Winzo, the team sponsors of Kolkata Knight Riders in IPL 2022.

"The imposition of 28% GST could act as a deterrent for the entrance of marquee global players. It’s important to note, the Supreme Court of India has clearly established the difference between ‘Games of Skill’ and gambling or ‘Games of Chance’. Therefore, online gaming and casinos/race courses should never be painted with the same brush," added Rathore. 

Jay Sayta, who specialises in gaming policy matters, disagrees. 

'The online gaming industry should be prepared to pay their fair share of taxes to the exchequer and contribute to nation building. The 28% tax on the gross gaming revenue or platform fee earned by the gaming companies is reasonable given that several other industries including automobiles, cement, aerated beverages etc. also pay the highest slab of tax," says Sayta.

"However, taxing the contest entry fee or bet value may not be reasonable and lead to tax evasion, parallel black market and closure of many companies. The right approach would be to keep the tax at 28% on the platform fees and not the entry fees," adds Sayta.

Nation Building!

Nation building is uppermost in the minds of top operators like MPL. While the proposed 28% GST will certainly pinch their business, MPL is already using its large base of gamers to educate women on social issues like trafficking. 

"We are happy to contribute to nation building. With gaming slated to reach 5 billion USD in revenue by 2025 and multiple unicorns in the sector, we hope that the government creates a taxation framework that promotes sustained growth of this sector," says Dibyojyoti Mainak of MPL.

But the online gaming industry is largely seeing the 28% GST slab as a major impediment.

"The more important and critical aspect is the valuation which we believe has to be on GGR methodology only. Not only will this be in sync with globally accepted practices but will also help the Indian registered companies and protect the gamers from moving to offshore black market operators who do not pay any taxes here," points out Roland Landers, the CEO of All India Gaming Federation, a powerful body comprising online gaming operators. 

"The black-market operators will siphon revenue from legitimate tax-paying operators, opening the door for money laundering and funding of other illegal businesses. Moreover, the gaming platform operators will be unable to continue operations at any meaningful level. Growth, innovation, employment opportunities, government revenues, and, most importantly, responsible and safe gaming will be significantly impacted," observes Sameer  Barde, the CEO of E-Gaming Federation. 

BCCI’s Fantasy

Fantasy operators could face immediate heat. They have invested heavily in cricket and BCCI has given them a free run in spite of stating that it is against "real money gaming." BCCI president Ganguly is the brand ambassador of a fantasy cricket company which is now sponsoring the women’s T20 version of a mini-IPL. This fantasy cricket app is part of a gaming platform that has rummy, among other real money games. 

BCCI did not respond to queries if 28% GST slab will impact its 'business' with gaming companies, who are firmly embedded in the cricket ecosystem. It is also not clear how BCCI has differentiated fantasy cricket operators from rummy or poker operators, because the court orders are still not entirely conclusive, according to lawyers operating in the gaming space.  

It's clearly not looking good for the online gaming industry. In a conservative society that sees money spent on anything that more often than not goes down the drains, a higher tax slab is perhaps the government's way to discourage the common to risk his life on a 'sport' that has many shades of grey.

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