Over 100 Gaming Startups, Industry Bodies Urge Govt To Reconsider 28% GST Regime

A group of over 100 gaming startups and a few industry federations have written a letter to the government asking it to reconsider the GST Council’s decision to levy a 28% GST on the sector on full value, which they said will have devastating implications.

“The industry stands in unison to request a viable and progressive GST regime and appeals for reconsideration of the current recommendation,” the letter, addressed to the Prime Minister’s Office, Ministry of Electronics and Information Technology, among others, said.

The letter was signed by companies such as Nazara Technologies, MPL, GamesKraft, MyTeam 11, WinZO Games, among others. Industry bodies All India Gaming Federation (AIGF), E-Gaming Federation (EGF), Federation of Indian Fantasy Sports (FIFS) were also among the signatories.

Earlier this week, the GST Council gave a major blow to the real-money gaming industry with its decision to levy 28% GST on full face value for online gaming companies, with no distinction between games of skill and games of chance.

“The recent recommendation by the GST Council to club online skill gaming, a constitutionally protected activity, with betting and gambling, has left the industry in significant distress,” the letter read.

“The proposal to charge GST on the full deposit value will reverse the growth trajectory of the industry. This would potentially have devastating implications (including shut down of businesses) for MSMEs and startups that may not have the capital reserves to withstand such a sharp tax increase,” it added.

The letter said that the implementation of the recommendation of the GST Council would result in an unprecedented 400%-500% increase in GST burden, which the industry will have no choice but to pass on to users. This will impede the growth potential of the industry and disproportionately impact the survival of a large number of MSMEs and startups.

As per the letter, the gaming industry employs around 1 lakh people through engineering, marketing, design, and research jobs among others. Additionally, it also supports lakhs of content creators, game streamers who belong to Tier II to V cities. The growth projections of the industry envisage more than 5 lakh new jobs over the next five years. 

The letter said that any negative impact on the industry will lead to companies making cuts in their spending, resulting in significant job losses.

In addition, the proposed GST hike will also increase the cost of each game. Users, who are already required to pay 30% income tax on winnings, would be unable to bear such a large increase in cost and will shift to black market operators to avoid the increase in playing costs and reduction in the winning pool.

“The biggest beneficiary of such a change in the tax regime will be black market operators including illegal offshore gambling websites and nefarious unscrupulous elements. This will result in substantial tax loss to the government and will expose Indian gamers to harmful offshore gambling websites, which are not accountable to the Government of India,” the letter noted.

Currently, real-money gaming companies offering games of skills pay 18% GST on the platform fee charged by them. The letter argued that even if this is increased to 28%, it would result in a 55% increase in GST quantum. They said while 28% GST on platform fee would prove to be challenging, the industry supports it. 

“However, for the sector to survive, this tax should be levied on the platform fee/Gross GamingRevenue that is earned by the industry. This is similar to any other technology service platform, where only the revenue that platforms earn are considered for the purpose of levy of GST,” the letter said.

Earlier, speaking to Inc42, many stakeholders said that the new GST regime would make the entire industry “disappear”. 

Meanwhile, top government officials justified the move in different ways. “The GST Council’s decision to levy taxes on online gaming is a well-thought-out preliminary measure,”  Union Minister of State for Electronics and Information Technology Rajeev Chandrasekhar said.

Revenue Secretary Sanjay Malhotra said the government believes the move serves a social and economic purpose if revenues fall. 

India’s gaming market size was estimated to be around $2.6 Bn in FY22 and predicted to reach $8.6 Bn by FY27, according to a report by Lumikai. The number of gamers in India stood at 507 Mn in FY22, growing at a CAGR of 12% from 450 Mn in FY21.

Gaming startups raised $349 Mn in 2022, which was 80% lower than the capital inflow of $1.74 Bn in 2021. While the sector started recovering slowly in the first half of 2023 in terms of funding, the industry worries the investors will further move away after the government’s latest move.