Budget 2024: Online Gaming Startups Seek Progressive Taxation, Allocation Of Funds For AVGC

Over the past year, the Indian online gaming industry has been grappling with heightened regulatory scrutiny and increased tax regulations, which have particularly impacted the real-money gaming (RMG) sector.

While the Ministry of Electronics and Information Technology (MeitY) provided some clarity by introducing online gaming rules in the first half of 2023, the industry faced a setback when the GST council imposed a 28% GST on the RMG segment.

These challenges are reflected in the significant decline in the funding for the gaming space, plummeting from $576 Mn in 2022 to $209 Mn in 2023, according to Inc42 data.

Now, as the countdown to Union Budget 2024-25 has begun, the country’s gaming startups have high expectations from finance minister Nirmala Sitharaman to get the industry back on track and aid its growth.

From clarity on taxation policies, especially for the RMG segment, to announcement of new programmes and higher allocation for skill development in the gaming sector, the gaming startups have a number of demands from the government to support the industry’s growth. Let’s take a look at the key expectations.

A Progressive Taxation Regime For The Gaming Sector

Last year, the government announced that it would levy a 28% Goods and Service Tax (GST) rate on entry-level payments for online gaming.

Subsequently, in August, the GST council approved amendments to the Central Goods and Services Tax (Amendment) Bill, 2023, and the Integrated Goods and Services Tax (Amendment) Bill, 2023. These amendments, later ratified by Parliament, established a uniform 28% tax on the total value of bets in online games, irrespective of whether they involve skill or chance.

Despite the Ministry of Finance implementing new rules, several aspects of online gaming taxation remain ambiguous. Some of the tax notices sent to the gaming startups, dating as far back as 2017, have raised concerns about retrospective taxation, despite the Centre denying it.

Gaming giants like Dream11 and Games 24×7 have received tax notices for thousands of crores, adding complexity and uncertainty to the tax landscape for these entities. Hence, the industry is seeking clarity on the taxation policy now.

“The industry eagerly anticipates long-term clarity and a progressive taxation regime from the upcoming Budget. This clarity is crucial for driving the next phase of growth, as it will not only provide a conducive environment for businesses but also revive investor confidence in the sector,” said Namratha Swamy, chief operating officer of gaming unicorn Mobile Premier League (MPL).

The GST Council gave some hope to the industry, saying a review of the impact of the new tax regime will be undertaken after six months of its implementation. While any announcement in this regard is unlikely in the Budget, industry players are eagerly waiting for updates on the matter.

“A progressive taxation regime will further incentivise investment, leading to the creation of more job opportunities for our talented youth,” Swamy added.

As per Joydeep Mukherjee, chief marketing officer of Deltatech Gaming, the stringent taxation norms have the potential to limit innovation and growth of the sunrise industry. “We hope that real-money games will be treated at par with the entertainment industry,” he said.

Skill-Building Programmes For The Gaming Sector

The online gaming industry provides job opportunities across different roles – content, game designing, animation, programming, engineering, testing, UI & UX design, analytics, marketing, and sales.

However, the industry has been facing a shortage of talent due to the lack of adequate training for the sector. Consequently, gaming firms are seeking the announcement of skill-building programmes with a focus on the industry in the upcoming Budget.

“The government should create a SEZ for game development with special incentives to promote and assist skill-building programmes in game design and development,” said Nitish Mittersain, MD and CEO of Nazara Technologies.

Echoing similar sentiment, MPL’s Swamy pitched for the announcement of dedicated educational courses for gaming in the Budget.

“These courses will play a pivotal role in nurturing the next generation of game developers and professionals, ensuring a steady supply of skilled talent to fuel the industry’s growth,” she added.

Budgetary Allocation For The AVGC Sector

FM Sitharaman announced the establishment of an Animation, Visual Effects, Gaming, and Comic (AVGC) task force in her Budget speech in 2022. The task force was officially constituted in April that year under the Ministry of Information and Broadcasting.

In December 2022, the task force, in its report, proposed the formation of a national AVGC Mission with a dedicated budgetary outlay to promote the sector. It also suggested some sweeping changes to develop the burgeoning sector. However, there have been no further updates on the issue since then.

Leading up to the Union Budget 2023, online gaming startups sought greater clarity on the budgetary outlay and potential sector benefits from the AVGC task force. However, the budget did not provide any clarity on these matters. Now, gaming startups are again seeking clarity and allocation of funds for the AVGC sector in the upcoming Budget.

“We anticipate the government will continue its support for the burgeoning online gaming industry, in line with previous commitments such as the formation of the AVGC task force. This backing is crucial for fostering innovation in game design and development in addition to nurturing a pool of globally competent resources coming out of India,” said Rahul Tewari, chief financial officer (CFO) of Games24x7.

Suhaas Khullar, the CFO of Loco, sought essential allocation for skill development and specific tax incentives tailored for the AVGC sector in the Budget next week. He said this would play a crucial role in bringing the ‘Create in India’ vision to fruition and will help in the long-term growth of the sector.

Meanwhile, Roland Landers, CEO of the All India Gaming Federation, said he anticipates progressive allocations will be made towards the online gaming sector in the upcoming Budget, including towards the implementation of IT Rules for online gaming and the establishment of self-regulatory bodies (SRBs).

It is pertinent to note that the Ministry of Electronics and Information Technology (MeitY) notified the rules for online gaming last year. Although four industry bodies of the online gaming sector filed three different applications for the formation of SRBs, there has been no significant update yet on the approval.

“Additionally, we look forward to budgetary allocations aligned with the AVGC policies, in line with the recommendations of the AVGC task force’s report…” Landers added.