Budget 2023: Online Gaming Startups Seek Stable Tax Regime, More Clarity On AVGC Fund

Ahead of the Union Budget 2023, online gaming startups have sought more clarity on the budget outlay and other benefits for the sector from the Animation, Visual Effects, Gaming and Comics (AVGC) task force that was created last year.

“We believe that the government will allocate funds in the coming budget to take forward the recommendations of the AVGC task force, including measures such as tax incentives for game development and investment in infrastructure for the gaming industry,” Gaurav Kapoor, chief finance officer, Baazi Games, told Inc42.

Budget Allocation For AVGC Sector

In her Budget speech last year, Finance Minister Nirmala Sitharaman announced the formation of an Animation, Visual Effects, Gaming and Comic (AVGC) task force, which was later constituted in April under the aegis of the Ministry of Information and Broadcasting.

“In last year’s budget, the government recognised the gaming sector as one of the potential segments for job creation in India and set up the Animation, Visual effects, Gaming, and Comics (AVGC) promotion task force to realise the potential of the segment. We are hoping for the announcement of constructive action in that direction to give a boost to the gaming industry,” cofounder of WinZO Paavan Nanda said.

The year 2022 has been a year of significance for the online gaming industry, as it included initiatives such as the formation of the AVGC task force and higher focus on regulatory frameworks, Rahul Tewari, chief financial officer, Games24x7 noted.

“At this critical juncture in the growth of the industry, we eagerly look forward to favourable economic policies and consistency in the tax regime from the Union Budget 2023. Further, comprehensive regulatory policy frameworks will allow the industry to sustain,” Tewari added.

It is pertinent to note that the AVGC task force, in a report released last month, called for the creation of a National AVGC-XR Mission with a budget outlay for the integrated promotion and growth of the sector. However, the report does not mention the quantum of budget to be allocated.

Clarity On Taxation Rules

Demanding more transparency on the AVGC fund, which was set up under the AVGC Promotion task force, MPL cofounder and CEO Sai Srinivas said that there was a need for greater clarity on the GST mechanism for the online gaming industry.

As the government has been working on the taxation rate for the online gaming sector, the final decision on the GST rate is still pending. Currently, a tax rate of 18% is levied on the commission collected by online gaming platforms for games not involving betting or gambling, whereas it is zero for contest entry fee. The inter-ministerial panel headed by Meghalaya Chief Minister Conrad Sangma has recommended the GST Council to levy 28% GST.

“The industry is currently in its nascent stage, and needs stability and clarity from a tax and compliance perspective. The proposed 28% GST on the Gross Gaming Value of all games played would have an existential impact on the segment,” Winzo’s Nanda said.

In addition, the government is tightening the Tax Deduction at Sources (TDS) norms, and winnings from online gaming could come under stringent tax scrutiny. Against this background, the Winzo cofounder wants the current GST slab and TDS threshold to stay. According to him, a sharp increase in tax will deter growth, sink early-stage startups further into losses, and make the industry unviable.

Although the sector is grappling with several regulatory hurdles, the government appointed the Ministry of Electronics and Information Technology (MeitY) as the nodal ministry for online gaming last year. It is not likely that there will be any significant update regarding the gaming policy in the budget, but industry experts expect that the government will implement a centralised framework for online gaming regulation this year.

“The intent behind regulating the industry is laudable. The industry needs a set of rules to grow
further. The ambiguity around the rules and identity of the industry is only restricting its growth. A clear set of rules to abide by should be mandatory for all the states and stakeholders which will help for the overall growth,” CEO of PlayerzPot Sunil Yadav said.

Meanwhile, esports, which has largely been correlated with online gaming, got official recognition as sports last year. While the industry has welcomed the recognition, esports players are yet to receive more clarity, Penta Esports’ founder Anurag Khurana said.

With esports coming under the Ministry of Youth Affairs and Sports, the industry is hoping to receive some acknowledgement in the upcoming Budget session, he added.

According to a report by VC firm Lumikai, India’s gaming market is expected to grow at a CAGR of 27% to reach a size of $8.6 Bn by FY27. The number of online gamers in the country grew 12% to 507 Mn by March 2022 from 450 Mn in March 2021. Gaming startups raised $349 Mn in 2022, which was 80% lower than $1.74 Bn raised in the year ago period.

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