Gaming industry in a fix after GoM proposes application of GST at 28%

The Indian gaming industry is in a fix after an empowered group of ministers (GoM) unanimously proposed a flat 28 per cent goods and services tax (GST) on gaming activities.

Indian gaming companies and the industry body representing the industry had made representations for the continuation of an 18 per cent taxation, saying that this brings the Indian gaming industry at par with global players.

Roland Landers, CEO of All India Gaming Federation, believes that to push and encourage the online gaming industry to its peak growth potential, it is imperative that the GST regime for Online gaming Industry is kept rational and progressive.

“While it is clear that the GST valuation will likely be at 28%, there however seems to be a lot of confusion on the valuation methodology including initial sum, Gross Gaming Revenue and total deposits being reported in the media. I believe that any other valuation other than Commission /service fees will be disastrous for the gaming industry,” Landers told Business Standard.

According to a Business Standard report, the panel of ministers, which met on Wednesday, also decided that the tax will be levied on the entire “face value” or “bet amount” and not on the total transaction value. Total transaction value includes the prize money, or the net commissions (revenues) that accrue to gaming firms.

Industry players are also saying that by proposing to bring online gaming in the 28 per cent tax slab, the government is equating online games in the same category as horse racing and gambling, this when e-sports is making its debut at the 2022 Asian Games.  

The other demand from the industry has been to keep a differentiation between games of skill and chance, which the proposed recommendation of the GoM does not consider. The industry has consistently said that games of skill should continue to be viewed through a different lens.

Rishabh Bhansali, co-founder, FanClash, said, "The proposal to keep games of skill and chance on par, will be massively detrimental to the Indian Gaming Industry, which is expected to grow to the size of $5 billion by 2026. Levy of tax at 28% will cause major cash flow disruptions across the industry.”

He further added: “The proposed valuation rules to tax the entire entry fee, instead of the platform fee earned by Skill game operators, will impact their business viability. This will in turn affect the gamers, the industry and its employees, and eventually the taxman, who will, in the long term see large dips in tax revenue.”

House of Gaming founder and CEO, Yash Pariani shared that in the coming days for the gaming industry to perform, one needs to understand the relevance of how to realise the demarcation of the contribution, in terms of skill and monetization based games. “This increment in taxation will definitely raise a lot of disturbance in the gaming sector," he said.

The changes in taxation has created a lot of confusion as well on the way taxation will be imposed. Soham Thacker CEO & Co-Founder of Gamerji, esports tournament platform. said, "Gamerji as a platform does not fall under RMG (real money gaming) since the revenue model works on subscription. However we are still waiting on some clarity if the law applies for in-app purchases as well which will include virtual purchases on Gamerji."

"It will have an adverse effect on the gaming boom that India is witnessing at the moment, specifically in tier 2-3 cities which are price sensitive. An average gross margin in gaming is approximately 20% and the addition in GST will force the companies to charge more from the users while forcing some of them to stop playing." 

In recent years, the online gaming industry has experienced significant growth. The sector generated Rs 11500 crore in revenue in 2020, and it is predicted to expand at a CAGR of 38% to Rs 384 billion by 2025. The contribution to the government exchequer by this industry was Rs 15 to Rs 20 billion in 2020, and the same is expected to reach Rs 3500 to Rs 5000 crore by 2025.