"RIP Gaming Industry": Why Industry Experts Are Worried Over 28% GST On Online Gaming

The announcement of the GST Council to impose a 28 per cent tax on the turnover of online gaming companies has not gone well with the industry which has called it a "killer" blow that will lead to job losses.

This bold move has raised critical concerns about the future of the industry as a whole. Sagar Nair, co-founder, and CEO of Qlan, the Gamers' Social Network, said that the decision of the GST council to impose a 28 per cent tax will have a significant impact on the online gaming industry, which unfortunately includes the Esports community.

He said, "While we understand that the government needs to impose such measures on casinos, horse racing, and gambling, the higher tax rate is not justified for the competitive gaming community. It can discourage new players from entering the market as their hard-earned earnings generated through their efforts just like mainstream athletes will be taxed on the same level as those involved in gambling and other such practices. For the Esports industry to continue its unprecedented growth and recognition on the international stage, it is vital for the government to treat Esports as a separate category with reasonable tax rates that would support the development of the sector."

Amrit Kiran Singh, Chief Strategy Advisor to the Founders of Gameskraft, said that the decision to impose taxes on online gaming seems to contradict the positive efforts made by the Modi government to support the industry. These efforts include appointing the Ministry of Electronics and Information Technology (MEITY) as the nodal ministry for this sector, introducing regulatory rules, facilitating the establishment of Self-Regulating Bodies (SRBs) to oversee the industry, and addressing the uncertainties surrounding TDS deduction rules.

He further said that it was not in the "national interest" as this development will destroy a significant portion of successful companies in India's start-up ecosystem.

"Unfortunately, it also appears to show that the different limbs of the government are not in sync. One must remember that over 2 lakh jobs have been created by the industry. And this is just the tip of the iceberg. Today, India has only 1% of the world market share. This could easily grow to 5 and 10% rapidly with India being an IT powerhouse. USA and China are the market leaders with 23% and 25%, respectively. This is a borderless industry and over-taxation in India will only support the cause of the overseas gaming companies and encourage Indian industry to migrate overseas," Bar and Bench quoted him as saying.

Rohit Agarwal, founder and director, Alpha Zegus, said, "Yet again, esports being included in the same domain as online gaming, horse racing, and casino, has put our industry at a major disadvantage. While the government might have fair reasons to impose higher GST on horse racing and casino winnings, imposing the same rules on an industry like esports doesn't seem fair. Esports does not only have a 'win or lose' situation basis luck but has a very big element of skill that determines the outcome of the game. This is not what I expected, and our fight to separate esports from other labels still continues."

According to Sudipta Bhattacharjee, a partner at Khaitan & Co, the 28 per cent tax rate is not only detrimental to the online gaming industry but charging taxes on the full value could pose a severe threat to gaming companies, potentially pushing them towards the brink of extinction.

"This is completely against the vision of the government to promote online gaming in India. The findings of the Karnataka High Court in the Gameskraft case with respect to the distinction between a game of skill and a game of chance has not been appreciated. It will need to be seen if the prescribed methodology to tax online gaming will pass the test of constitutionality. In any case, this cannot be implemented retrospectively," he said.

He further added, "The setting up of the appellate tribunals is a welcome move and may help in reducing the burden on the High Courts and effective disposal of the pending GST litigation. However, the success or failure of the tribunals will depend on the staffing of adequate members which has been a challenge with earlier tax tribunals."

Ashneer Grover, co-founder and managing director of Bharatpe, lashed out at the GST Council's decision. On Twitter, he wrote, "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 the first monsoon - not happening!"

He then claimed that it was time for startup founders to foray into politics. "It was good fun being part of the fantasy gaming industry - which stands murdered now. $10 Bn down the drain in this monsoon. Time for startups Founders to enter politics and be represented - or this is going to be spate industry after industry," he added.

The decision to impose taxes on online gaming was defended by Finance Minister Nirmala Sitharaman, who clarified that it was not intended to single out any particular industry. She highlighted that the decision was made after extensive consultations with all members of the GST Council, including representatives from states such as Goa and Sikkim, where casinos contribute significantly to the tourism sector.

Sitharaman on Tuesday said that the tax on online gaming will be enforced irrespective of skill-based games or luck-based games.

She said, "We will still align with what MeitY wants to bring in as their regulation. There will be an amendment to Schedule III of the GST Act and we will be bringing online gaming into the actionable claim list where item number 6 clearly says betting, gambling, and lottery are already in it. We will be including online gaming and horse racing also into it. Therefore they will be taxable on full face value at 28 per cent."