The latest decision of the Goods and Service Tax (GST) to levy a 28% tax on the face value of deposits made in online gaming has left the industry disheartened. The new tax regulation will have a massive negative impact on the industry. To understand better what this tax really means, click here.
All India Gaming Federation (AIGF), the apex self-regulatory body that governs online gaming in India, explains the implications this decision will have saying, “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%. Only established and well-entrenched skill gaming companies may be able to scrape through this change by using their existing capital reserves to counter the effects of substantially increased tax liability. However, even their revenues and valuations will significantly fall.”
Talking about what the AIGF will do to protect the industry, they said, “Additionally, companies at their early growth stages, particularly those within the startup and the MSME sector, will be disproportionately impacted. Moreover, the rampant illegal offshore gambling websites will thrive as efforts to block them has been ineffective till now. As the oldest and largest apex industry association for online gaming, and the voice of MSME gaming startups, we sincerely hope that as mentioned in the meeting, there will be a rethink after six months and a stable and progressive regime can be proposed, which will help the industry grow, provide safe platforms to digital nagriks, while increasing tax revenues and contributing to the vision of India becoming a global gaming power house.”
Badri Narayanan, Executive Partner, Lakshmikumaran and Sridharan Attorneys, said, “The Council’s decision to levy GST on deposits made at entry level has brought a sigh of relief for the sector. The council has recommended parity in treatment for casinos and online games of skill. With the said amendment, the valuation mechanism for Casino and Online gaming are kept at par, i.e., GST will be charged only on the value of coins purchased and money deposited in the wallet, respectively, rather than levying GST on each game played. This is a welcome clarification for the industry stakeholders. The decision is in alignment with the recent developments in income tax provisions linked to deposit of amount to wallet. Bank to bank transfer of money will create ease of transparency, traceability and monitoring for stakeholders. We need to await fine print of amendments in relation to definition, place of supply , offshore gaming etc.”
“The Council’s decision to review the tax policies after a period of six months will instil a sense of assurance on the effectiveness of measures put in relation to offshore gaming players and impact on the user base of the sector. The tax measures proposed for offshore gaming are similar to OIDAR mechanism. We need to see the tandem operation of IT intermediary rules and GST tax provisions for offshore gaming. The implementation of the amendment (prospective or retrospective) for the past period will be based on the decision taken by the Apex Court in the Special Leave Petition Court challenging the decision of the Hon’ble Karnataka High Court in the Gameskraft matter. This will result in a precarious situation of current investigations being continued till finality is obtained in SC,” he said.
Talking about the only positive that this decision brings, he said, “Recognition of the use of Virtual Digital Assets (VDA) to cash to play online real money games is a positive development. Acknowledging the use of VDA as a legitimate mode of payment is in line with global VAT developments. This will have an impact on the sector, however, it’s a balanced approach”.
Similarly, the Federation of Indian Fantasy Sports (FIFS) and E-Gaming Federation (EGF), said, “FIFS and EGF, which represent 50 Indian online gaming companies, appreciate the Government addressing the industry’s concerns on the issue of repeat taxation. The new tax framework, while clarifying and resolving uncertainty, will lead to a very burdensome 350% 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.”
Siddharth Sharma, SVP, Head Digital World(A23), 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.”
Amarylisa Gonsalves is a Content Writer at Gutshot Magazine. Advancing from a marketing background, she found her calling in writing. She takes delight in exploring genres and is a curious learner. Patient and ambivert, she believes in letting her work speak for itself. Apart from content writing, she finds solace in writing poetry by expressing herself through words. Additionally, she adores indulging in anything that satisfies her creative self, like drawing and DIY crafts.
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