Online Gaming Industry Calls For Levying GST Only On Gross Gaming Revenue

Ahead of the meeting of the Group of Ministers (GoM), set up by the Union Ministry of Finance to look into matters related to the GST regime covering online gaming, casinos and race courses, on May 2, the online gaming industry has urged the government to not levy high GST rates on it.

The online gaming industry is opposing the proposal to levy GST on 30% of the entry fee, along with a 115% surcharge, and is instead advocating for levying tax only on Gross Gaming Revenue (GGR). 

The industry believes that a high GST rate will make the entire online gaming industry unviable.

Drawing parallels to the international tax structure for the industry, experts pointed towards some leading international markets such as the U.S., UK, Australia and Germany, which levy tax on GGR at a rate between 15%-20%. 

“We’ve seen internationally that markets which started taxing the prize pool instead of the GGR have had to revert back to taxing only to GGR as it resulted in non-compliance, revenue leakage and grey markets,” said Gopal Jain, senior advocate at the Supreme Court.

The online gaming industry has sent several recommendations to the GST council ahead of the scheduled meeting.

Currently, a tax rate of 18% is levied on the commission collected by the online gaming platforms for each game.

Ahead of the GoM meeting, Goa minister Mauvin Godinho, who is a part of the GoM, also pointed out the industry’s demand for levying tax only on GGR and not on the transactions taking place or the number of times the consumers play different games.

“We are going to adopt the best practices which are there in the rest of the world,” he said. 

The online gaming industry has attracted FDI of over INR 10K Cr with the potential of attracting over INR 15K Cr in the coming three years, and experts strongly believe that the industry will become unviable if the current taxation regime is changed. 

“The burgeoning potential of the online gaming industry in India needs to be tapped rightfully. It is necessary that games involving predominance of skill should ideally be taxed at 18% on the platform fee,” said Rameesh Kailasam, CEO of IndiaTech.Org.

“Since online skill-based gaming is not gambling or betting or wagering, a clarification needs to be issued to resolve litigation and provide relief to the industry,” he added.

Online Gaming Ecosystem In India

According to a joint statement by the industry players, the digital economy is currently seeing a contribution of more than INR 1450 Cr in tax in FY21 from the online gaming sector alone. The sector is also projected to create over 12,000 jobs in the next 2-3 years. 

The industry players said that the online gaming industry would also play a crucial role in taking the startup spirit in the country to the next level.

According to an Inc42 plus analysis, the Indian esports market is expected to reach $175 Mn in terms of aggregated revenue by 2023.

The growth of India’s gaming industry will likely be dominated by players such as Dream11, the country’s first gaming unicorn, Mobile Premier League (from the soonicorn club), Nazara (from the IPO club) and more, according to an Inc42 report. 

As per a 2021 KPMG report, the number of online gamers in India grew to about 400 Mn by mid-2020 from about 250 Mn in 2018, making it the second-largest base of online gamers after China. To that end, the report said that the country’s online gaming market is expected to reach about $3.9 Bn by 2025.

Experts are of the opinion that if the taxation issue for skill-based online gaming is resolved at the earliest, the industry will attract higher growth and Foreign Direct Investment (FDI). Besides, it will also enhance consumer interest and tax revenue, which will help the government in the long term and make India a dominant global force in the Animation, Visual Effects, Gaming and Comic (AVGC) sector.