There should be no distinction between a game of chance and a game of skill, the Goods and Services Tax (GST) Council argued while announcing the tax rate of 28 per cent on online gaming, horse racing and casinos at full value.
This development, announced after the Council’s 50th meeting on Tuesday, has led to chaos and confusion in the online gaming industry. While it was said that this proposal was “clarificatory” in nature, experts believe this was something the industry had not expected.
“We are deeply distressed with the GST Council’s decision to implement 28% GST on the Contest Entry Amount (CEA) as opposed to Gross Gaming Revenue, which is the international standard for the sector,” Bhavin Pandya, Co-founder and Co-CEO of Games24x7 told Business Today.
Pandya believes that this move will create a hostile environment for legitimate platforms. Calling it an “unrealistic tax burden”, Pandya says, “Imposing GST on CEA will render the legitimate online gaming industry unviable, effectively driving consumers towards offshore and illegal platforms that pay no taxes, resulting in loss of taxes and outflow of foreign exchange. Further, this will also lead to loss of employment for thousands working in this sector.”
Mitesh Gangar, Co- Founder and Director of another online gaming company PlayerzPot, says the entire gaming economy that was steadily rising and was attracting foreign capital will take a massive hit now.
“The 28 per cent tax will corner this industry in a big way,” he says, adding, “The overall operations will not be feasible. The high tax burden will completely restrict the cash flow, limiting a company’s ability to invest in research, innovation, expansion or survival,” Gangar told BT.
According to estimates, the Indian gaming industry, considered a sunrise sector, is slated to reach $5 billion by 2025. Moreover, Indian gaming start-ups saw a 3x increase in funding in the first half of calendar year 2023 over the second half of CY22, according to a report by PwC.
A spokesperson from Nazara Technologies said the skill-based real money gaming business accounted for 5.2 per cent of consolidated revenues in FY23. “To the extent required, the company will proactively take steps to mitigate any potential impact to this segment of our business, and we anticipate minimal impact to our overall revenues,” the spokesperson said.
The gaming companies are urging the government and the GST council to rethink the announcement considering the ramifications of levying the tax on the overall health of the industry.
“We urge the government to reconsider this decision and work with the industry stakeholders to find a more suitable taxation model that supports sustainable growth for the industry,” Pandya concluded.
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