Around 127 online gaming companies and organisations have written an open letter to the government, urging it to reverse the 28 per cent GST on the full deposit value and segregate skill gaming from betting and gambling which has left the industry in significant distress.
The letter, which has participants like Baazi Games, Dangal Games, Gameskraft Technologies, Nazara Technologies and WinZO Games Private Limited, said this move would potentially have devastating implications (including shut down of businesses) for MSMEs and startups that may not have the capital reserves to withstand such a sharp tax increase.
“Further, this decision will encourage illegal offshore gambling operators, drive Indian users to them and ultimately lead to neither optimal tax collection nor the growth of the legitimate industry,” the letter read.
Online skill gaming, with a $20 billion enterprise valuation, $2.5 billion in revenue, and $1 billion in annual taxes, is set to grow by 30 per cent CAGR to reach $5 billion in revenue by 2025.
The total number of Indian online gamers grew from 360 million in 2020 to over 420 million in 2023.
India’s gaming industry attracted FDI of about $500 million between 2014 and 2020, and over $1.5 billion between January 2021 – June 2022.
“The industry currently supports lakhs of direct and indirect jobs, and these numbers will grow substantially in the next few years,” said the
letter.
The Goods and Services Tax (GST) Council this week announced that bets placed in online gaming, horse racing, and casinos will now levy a 28 per cent tax at full value.
According to Finance Minister Nirmala Sitharaman, the decision was not aimed at killing the industry but was made considering the “moral question” that it cannot be taxed at par with essential commodities.
According to the industry stakeholders, the recommendation of the GST council to levy GST on the full deposit poses a significant threat to the industry’s success, gaming innovation and continuity.
The letter mentioned eight core points that underscore the adverse impact of such taxation like hampering the Digital India Initiative; implications for startups and MSMEs; impact on jobs and livelihoods; impact on consumer affordability; offshore gambling sites to be the unintended beneficiaries; stifling foreign investment and global competitiveness; losing opportunity to become a global gaming leader and impact on exports and long-term net revenue loss for the exchequer.
“For the sector to survive, this tax should be levied on the platform fee/gross gaming revenue that is earned by the industry. This is similar to any other technology service platform, where only the revenue that platforms earn are considered for the purpose of levy of GST,” according to
the letter.
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