Karnataka Cabinet Delays Ordinance On 28% GST On Online Gaming

The Karnataka Cabinet has decided to postpone the approval of a draft ordinance aiming to levy a 28% goods and services tax (GST) on online gaming platforms. 

Karnataka revenue Minister Krishna Byre Gowda told Moneycontrol that the matter has been deferred to the next cabinet meeting. Although the proposal was included in the meeting’s annexure but was not discussed. 

The draft will now be sent to the legal department for further scrutiny before being reconsidered at the next cabinet meeting. 

This decision comes amid reports of internal discord within the Karnataka government over the proposal to impose a 28% GST on online gaming. Information Technology minster Kharge had previously argued that such a tax regime would hinder India’s goal of achieving a $1 Tn digital economy. 

This comes barely days after the union government notified amendments specifying valuation methodology for online gaming startups to calculate tax liability. 

The saga harks back to the GST Council’s decision in July that sought the imposition of 28% GST on the amount being paid at the entry level for online gaming. This was followed by a volley of criticism from all quarters of the Indian gaming industry which called for the revocation of the new levy. 

As gaming companies stared at heavy tax burden and imminent layoffs, many approached the government seeking rollback of the proposed high levy. But, the government stuck to the Council’s decision and decided on the October 1 deadline for all states to implement the new tax slab.

Eventually, Finance Minister Nirmala Sitharaman brought forth the bills before the Parliament during the Monsoon Session to amend the Central and Integrated GST laws in both Lok Sabha and Rajya Sabha. President Droupadi Murmu also gave her approval to the bills on August 19, thereby incorporating the changes into an Act. 

However, much has been unfolding at Indian gaming startups. While big names such as Mobile Premier League (MPL) and Hike have nearly culled their workforce by nearly half, more than 20-25% of online gaming platforms are mulling to get acquired or acquihired for pennies on the dollar. 

Meanwhile, Karnataka has emerged as a holdout ahead of the deadline for implementing the new rules, even as states such as Haryana and Arunachal Pradesh have already passed similar amendments to their respective state laws.

As the ecosystem grapples with the mounting pressure of the new levy, it remains to be seen what the future holds for online gaming startups. As the tax burden balloons, the spotlight is now on whether the central government will revisit the decision at the review meeting scheduled six months later.