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Online Gaming Companies Say 28% GST To Hit Their Business

Online Gaming Companies Say 28% GST To Hit Their Business
POSTED ON July 12, 2023 11:05 AM

Online gaming companies on Tuesday said that levying 28 per cent of Goods and Service Tax (GST) will limit their ability to invest in new games, impact cash flows, and business expansion.

The GST Council has agreed to impose a 28 per cent tax on online gaming, casinos and horse racing. The tax would be levied on the full face value.

The All India Gaming Federation (AIGF), which represents companies like Nazara, GamesKraft, Zupee and Winzo, said the decision by the council is 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 benefitting from this will be anti-national illegal offshore platforms," AIGF CEO Roland Landers said.

He said that when the central government has been supporting the industry, it is unfortunate that such a legally untenable decision has been taken, ignoring the views of most GoM states who studied this matter in detail.

Online gaming players have repeatedly urged the government and the GST Council to levy 18 per cent GST on their segment instead of 28 per cent that was recommended by the Group of Ministers (GoM).

"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," IndiaPlay's COO Aaditya Shah said.

He also said that skill-based games and apps engaged in betting or casinos should not be treated in the same manner.

The E-Gaming Federation (EGF), whose members include Games 24x7 and Junglee Games, said that 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.

"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," EGF Secretary Kumar Shukla said.

EGF claimed that 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," Shukla said.

"RIP - Real money gaming industry in India. If the govt thinks people will put in Rs 100 to play on Rs 72 pot entry (28 per cent gross GST); and if they win Rs 54 (after platform fees)- they will pay 30 per cent TDS on that - for which they will get free swimming pool in their living room come the first monsoon - not happening !" Grover tweeted.

He said it is time for startup founders to enter politics and be represented. "It was good fun being part of the fantasy gaming industry - which stands murdered now. USD 10 billion down the drain in this monsoon," Grover said.

PlayerzPot co-founder and director Mitesh Gangar said the higher burden will also impact the country's massive gaming industry and deter new players from entering the industry. "The rising gaming economy will take a big hit and trigger economic stress, restrict job creation and curtail economic growth within the sector," he said.

The Federation of Indian Fantasy Sports (FIFS) said the decision will shift users to illegal betting platforms leading to user risk and loss of revenue for the government. Deloitte India's partner, Shilpy Chaturvedi, said the council has proposed to increase the tax rate to 28 per cent rate and that too on the entry amount, particularly for real money games.

"Moreover, the GST Council has recommended removing the critical distinction between the game of skill and the game of chance, which has always been a determining factor in applying the rate of tax and valuation.

This distinction had its fair share of challenges, not only for the GST but under regulatory laws as well," Chaturvedi said.

"It appears that the distinction between games of skill and chance has been done away with. This is a setback for the Indian gaming industry as they were expecting that at least the levy will be on the margin and not on full face value," Shardul Amarchand Mangaldas and Co's partner Rajat Bose said.

Taxmann, Lead, Indirect Tax, Kishore Kumar, said the blanket proposal to levy GST on full face value on online gaming will possibly put an end to the sub-judice debate of 'game of skill' versus 'game of chance'.

"This change will bring the game of skill at par with wagering contracts which are in the nature of gambling and betting," Kumar said. Earlier, Additional Solicitor General N Venkataraman had said that putting money on uncertain events amounts to wagering.

He had also said that some states are making a mistake in trying to distinguish between a game of skill and a game of chance in the context of wagering.

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