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Hiking GST on online gaming from 18 percent to 28 percent will negatively impact industry: Experts

Indian Finance Minister Nirmala Sitharaman deferred the proposal to levy 28 percent GST on casinos, online gaming, horse racing, and the lottery. The Group of Ministers (GoM), headed by Meghalaya CM Conrad Sangma, has been asked to re-deliberate the tax rate on horse racing, online gaming, and casinos by July 15. As of now, an 18 percent GST is levied on these avenues, which is called gross gaming revenue (GGR). Experts believe the proposed 28 percent GST on entry fee/deposits is going to adversely impact the gaming industry. The new recommendation, they believe, is contradictory to global best practices, and will effectively raise the tax that companies pay by as much as 1000 to 1500 percent. And this is worrying gaming companies. Also Read – Maruti Suzuki new SUV to be unveiled this month: Report

“It will require the companies to pay taxes on money that they don’t earn. In other words, it’s more than the margin companies make. This will likely shut down the industry with immediate effect as well as take valuations down to zero. Further, taxing skill games at par with chance games, and under the gambling entry in the Constitution, is contrary to multiple court decisions on this point,” Dibyojyoti Mainak, SVP, Legal and Policy, MPL told Also Read – Battlegrounds Mobile India crosses 100 million registered users on Android, iOS

The GoM has recommended that online gaming should be taxed at the full value of 28 percent, including contest entry fee paid by the player on participating in the game. The new tax will pass the burden of the taxes to the players and ultimately reduce the prize pool. This would lead to users shifting to gaming platforms in other countries. Some experts say that this could let many online gamers leave betting platforms like fantasy sports, rummy, and poker. It could further force Indian online gaming companies to move overseas. Also Read – Govt to finalise GST on online gaming in August 2022, says FM Nirmala Sitharaman

“The market has been operating in a manner where a clear distinction exists between games of chance or gambling on one hand and all other forms of online gaming and sports on the other. There is a fundamental difference in the nature of these two forms of services, their consumer demographics as well as their long term contribution towards building an admirable nation state. To paint the entire online gaming industry with the same brush as gambling by placing it in the same tax slab is 28% from the current 18% would have serious implications on the development of this sector,” WinZO’s spokes person noted. WinZO is a mobile e-sports social gaming platform. The platform offers nearly 70+ games including carrom, cricket, bubble shooter, fruit samurai, knife up, memory mania, fantasy league, and trivia-based questions.

As per KPMG, online gaming is an emerging sector in India and has shown robust growth on account of the increase in the wireless internet users and smartphone base. Data usage per telecom subscriber has grown from ~0.4 GB per month in 2015 to ~10.4 GB per month in 2019, with a corresponding decline in the data cost over the same period.

Further, the widespread adoption of digital payment mechanisms like Unified Payments Interface (UPI) (value of UPI transactions has grown from Rs 2 trillion in Jan 20 to Rs 4 trillion in Jan 21) have also been key growth drivers for online gaming. Real money gaming including card-based games and online fantasy sports segments have seen strong traction in recent years, driven by the high affinity for Indian users to pay for games if there is a monetary incentive involved.

“For an industry like online gaming, which is still in its early stages of growth and recognition, leavening higher tax slabs would hinder the growth and act as a barrier for rising companies, developers, creators and gaming organizations alike. The higher tax slabs can come in after a few years once the industry has reached a stage similar to the bigger entertainment sectors in India,” Rohit Agarwal, Founder and Director, Alpha Zegus, the next-gen marketing agency specializing in the domains of gaming and lifestyle, concluded.

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