In its 51st meeting held on August 2nd, the GST Council reaffirmed its stance on applying a 28 per cent tax rate on online gaming, casinos, horse racing etc.
The decision taken by the Council was seen as a major threat to the online gaming industry, with concerns that it could lead to the downfall of significant investments and thousands of jobs in this emerging sector. Despite their worries, the industry members expressed gratitude for a crucial clarification regarding the valuation rules for the 28% tax, which was approved by the Council.
How the new taxation policy will work
Finance Minister Nirmala Sitharaman who chaired the meeting, clarified that the tax would be levied on the initial amount paid for the game, not on the total value of each bet made. While the gaming industry remains dissatisfied with the 28 per cent tax, tax experts see a glimmer of hope and some relief for the sector. Minister Sitharaman also said that she hopes that the new tax rate will be implemented from October 1.
In simple terms, Finance Minister Nirmala Sitharaman clarified that if someone enters a casino and buys chips worth ₹1,000, and then plays a round and wins ₹300, the tax will not be applied to the total amount of ₹1,300 won but only on the initial entry amount of ₹1,000. This explanation was welcomed by the E Gaming Federation and Federation of Indian Fantasy Sports in a joint statement, as it addresses their concerns about facing “repeat taxation.”
How the industry reacted
Industry players, including the All India Gaming Federation (AIGF), which represents more than 120 online gaming companies, expressed concerns about the Council’s decision on deposit valuation. In a statement, they said, “We believe the decision by the GST Council of valuation on deposits will severely impact the online gaming sector and result in a situation where a majority of players, including the MSMEs will no longer be able to survive in the face of the increased tax liability of 400-500 per cent.”
Siddharth Sharma, SVP, Head Digital World(A23), one of the biggest gaming studios in India said, “The Council’s decision to levy 28% GST on player deposits settles a long-standing need for a stable taxation framework for the Online Gaming sector, and we welcome the clarity this decision will bring. However, the nearly 4X rise in GST will shackle our and the industry’s growth for the foreseeable future, as we pivot our business models to adapt to the new tax regime. We remain committed to providing a seamless, enjoyable, yet safe gaming experience for our users, and we are confident our focus on innovation will propel us forward despite the immediate hurdle.”
The Federation of Indian Fantasy Sports (FIFS) and the E-Gaming Federation (EGF), which represent 50 Indian online gaming companies, in a statement said, “The new tax framework, while clarifying and resolving uncertainty, will lead to a very burdensome 350 per cent increase in GST and set the Indian online gaming industry back several years. However, it will allow gaming companies a fighting chance to innovate and rebuild the foundation of gaming in India.”
Saket Patawari, executive director of Nexdigm, said, “The GST Council has agreed to review the levy after six months. A conscious decision has been taken to not differentiate between ‘game of skills’ and ‘game of chance’ and therefore, an SLP (special leave petition) has been filed before the Supreme Court challenging the judgment of Karnataka High Court in GamesKraft Technologies Pvt. Ltd.”
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