28% GST on online gaming big blow to $1 trn digital economy target: IAMAI

GST Council's decision to levy a 28 per cent tax on online gaming is a huge blow to India's goal to become a USD 1 trillion digital economy by 2025, industry body IAMAI said on Wednesday.

The Internet and Mobile Association of India (IAMAI), which represents internet based companies, said that the net effect of 28 per cent GST (Goods and Services Tax) levy will result into around 1,000 per cent increase in tax on the industry, cause irreversible damage to the USD 2.5 billion investments in the Indian online gaming startup ecosystem, and lead to a complete halt on any prospective foreign direct investment (FDI).

"It shall also serve as a huge blow to India's ambitious target to achieve a USD 1 trillion digital economy by 2025," IAMAI said.

GST Council decision to impose a 28 per cent tax has been unanimously opposed by the online gaming industry.

Online gaming companies have repeatedly asked the government to levy less than 18 per cent GST on skill-based gaming.

Industry players have said that the 28 per cent GST on real money games places them at par with gambling.

IAMAI said that the new tax structure is contrary to global best practices, where GST on online gaming is levied on Gross Gaming Revenue (GGR) or the platform fee.

"Taxing the country's legitimate online gaming industry with gambling activities will not only massively dent the burgeoning online gaming sector but will also threaten to make the entire USD 20 billion Indian online gaming sector an unviable business model," IAMAI said.

Online gaming company Head Digital Works (A23) SVP- Business Strategy Siddharth Sharma said that the new tax rate of 28 per cent on gross gaming value is an unexpected move by the GST Council, which will have far-reaching consequences for the industry and question its basic viability.

"Not only will this burden hinder the growth of this nascent industry, its application will compress new innovation and opportunities. Businesses have a legitimate concern that this move will push users towards illegitimate betting and gambling operators that don't follow the laws of the land," Sharma said.

PlayerzPot co-founder and director Mitesh Gangar said that levying a 28 per cent GST on total face value on online gaming will corner the gaming industry in a big way.

"The overall operations will not be feasible. The high tax burden will completely restrict the cash flow, limiting a company's ability to invest in research, innovation, expansion or survival. The rising gaming economy will take a big hit and trigger economic stress, restrict job creation and curtail economic growth within the sector," Gangar said.

Lakshmikumaran & Sridharan Attorneys executive partner L Badri Narayanan said that after taxing 100 per cent of the winning amount under the new TDS regime, taxing the full value of entry fee will have a significant impact on prize pool and incentive for players.

"The differential treatment for games of chance like casinos and games of skill played in online gaming is arbitrary and will face legal challenges. This decision will have an adverse impact on the nascent sector and future investments. As highlighted in the GST Council, this will aid in the further development of grey market operators and dark web affecting customer interest," Narayanan said.

"This development will spur growth in offshore companies and the users increasingly opting to play on illegal platforms. Which will lead to job losses and make Indian companies de-grow from the current levels," Baazi Games chief financial officer Gaurav Kapoor said.