90 Percent of India’s Online Skill Gaming Industry Says 28 Percent GST over GGV Will Be Catastrophic
India's GST Council did not take a decision on what recommendations to make for changes to the indirect tax levy on online gaming, casinos, and horse racing at its 47th meeting held on June 28 and 29 in Chandigarh. Instead, the Group of Ministers (GoM) tasked to look at the issue was directed to re-examine its stance based on further input from state governments and submit a new report by July 15.
The eight-member GoM led by Meghalaya Chief Minister Conrad K. Sangma was formed in May 2021 and submitted its full report in May this year.
Reportedly, the GoM has proposed Goods and Services Tax to be applied on the full Gross Gaming Value (GGV), or the whole entry ticked or bet amount, instead of levying only the Gross Gaming Revenue (GGR), or the trade margin kept by gaming operators for their services.
The GoM's suggestion also includes a hike of the applicable GST rate from 18 to 28 percent. According to the proposal, all online gaming varieties, casinos and horse racing betting would be taxed uniformly.
A statement by the three major gaming industry bodies in India - the All India Gaming Federation (AIGF), the E-Gaming Federation (EGF) and the Federation of Indian Fantasy Sports (FIFS), who collectively represent an excess of 90 percent of the country's online skill gaming industry, expressed a serious concern that an implementation of the so proposed GST regime would be "catastrophic" for the sector.
The GoM's current GST levy proposal is not only a "conflict with international best practices but also violative of the principles of GST," the statement said.
According to the three federations, an eventual GST levy at the highest rate slab of 28 percent over the whole GGV will force gaming operators to drastically lower the prize pools they offer to gamers. Such a development will drive loyal users away from their platforms and towards offshore or black market websites that promise higher gains.
As has been shown by global studies, levying tax on the prize pools instead of charging only the GGR leads to reduction of tax collection and flourishing of shady or illegal platforms at the expense of legitimate gaming operators.
In this way, the implementation of the proposal by Conrad Sangma's GoM in its current form has the potential to inflict a permanent and irreparable harm to the country's online gaming industry by incentivising users to play illegally without any tax being collected.
Several developments of the last few months show a new and growing interest in India's central and state political circles towards regulating the online gaming industry in view of ensuring player protection and a safe gaming environment for desi gamers, as well as raising tax collection. However, obliterating the country's gaming industry with overtaxation may easily render any regulation over it a pointless and empty move.
"At the end of the day, regulations are there to protect people, and it's proven that countries that regulate gambling aren't only able to ensure that players are using a safe product but are also ensuring that licensed operators are contributing to the welfare of the country in the means of tax and licensing fees," as stated by Felicia Wijkander, Chief Editor at SevenJackpots, one of India's largest casino comparison platforms.
Thus, the introduction of the Online Gaming (Regulation) Bill, 2022 in the Lok Sabha, the formation of an inter-ministerial panel to study global best practices, consult experts and propose a legal framework for gaming regulation, the setting up of the Animation, Visual Effects, Gaming and Comics (AVGC) Promotion Task Force, and the proposal of the Rajasthan Virtual Online Sports (Regulation) Bill, 2022, are all welcomed developments as long as India's gaming industry is able to survive and thrive.
According to Union Prime Minister Narendra Modi, "the gaming market is huge internationally and the number of youth connected to this market is increasing" globally.
The Indian part of the market is expected to generate $1.54 billion in revenues in 2022 and to grow further to $5 billion by 2025 creating two lakhs of new job opportunities. The number of desi gamers has grown by 8 percent from 36 crore in 2020 to 39 crore in 2021.
It would be a pity if India fails to support this industry with sensible tax and legal frameworks and devastates its potential with unreasonably high levies, pushing the tens of crores of gamers into the black market instead of ensuring a safe gaming environment for them.