In the recently held 50th GST Council meeting, the Indian government decided to levy a 28% GST on online gaming, irrespective of whether the game involves chance or skill. The date of execution of new GST rules was not declared by the government, but it will soon come into action once the GST law is amended, as stated by Finance Minister Nirmala Sitharaman.
The Indian online gaming sector is the fastest-growing industry, having attracted nearly $2.6 billion in investments in 2022 and is expected to experience high growth in the coming years. According to the India Gaming Report FY2022 released by Lumikai, in the 2022 financial year, India had 50.7 crore gamers, out of whom one-fourth, which means 12 crore gamers, are paying users. It is high time to explore the implications of the new GST tax policy on online gaming.
In this blog, we will talk about the online gaming market, how the 28% GST affects online gaming companies.
What is online gaming and Real- money online gaming?
According to the draft regulation by the Ministry of Electronics and Information Technology, an online game is a type of game that is accessible through the Internet and can be accessed using computer resources or other intermediaries.
Real money online games involve players putting money or kind into the game, and if they win, they earn winnings in return. The company that offers the game charges a network fee or takes
a commission from the amount of money the players bet on the game.
Real money online games include casino-style games like poker, e-sports, fantasy, rummy, and other skill-based games
Size of Online Gaming Industry in India :
According to the India Gaming Report FY2022 released by Lumikai, a gaming and interactive media fund, India’s gaming market is worth $2.6 billion in 2022, and it is expected to grow at a Compounded Annual Growth Rate (CAGR) of 27% to reach $8.6 billion by the year 2027.
The FY2022 report also added that India is one of the countries in the world with the highest number of mobile game downloads. Thus, back in 2022, the downloads were 6.5 billion, and it has increased to 15 billion now. Currently, India’s gaming market is three times bigger than the US gaming market and two and a half times larger than China’s online gaming market
According to the World Economic Forum, smartphones with gaming capabilities and a speedy internet connection are the factors driving India’s gaming industry.
28% GST on Online gaming :
At the 50th GST Council meeting, the Indian government decided to impose a 28% tax on the full face value of casinos, horse racing, and all types of online gaming. To implement the uniform tax on gaming, the government will bring an amendment to the GST law by the inclusion of gaming casinos, horse racing, and online gaming as taxable actionable claims.
In the online gaming industry, currently, companies based on skill are paying 18% tax on their Gross Gaming Revenue (GGR) or platform fee. Conversely, the companies providing games of chance are subject to a higher tax rate of 28% on the total value of bets placed. Moreover, players on these platforms do not want to pay any extra fees, except for the platform fee and a 30% TDS deduction on their winnings.
After the changes in the GST law, all kinds of online gaming companies, including those offering games of chance and skill, will be required to pay 28% taxes on the full value of bets placed.
How will tax work?
To understand the 28% GST on online gaming well, let’s comprehend the operation of tax with a simple example as follows:
- Under 18% GST tax: For example, if a player deposits 100 rupees on the online gaming platform, 10 rupees are deducted for the platform fee, which includes a GST tax amount of 1.8 rupees.
- Under 28% GST tax: For example, if a player deposits 100 rupees, 10 rupees will be deducted for the platform fee, and 28 rupees will be deducted for GST. Now, the player will have only 62 rupees to play with.
As a result, after the implementation of new online gaming GST rules, the player will have to pay 28% GST on the total amount bet, along with the platform fee and a 30% TDS deduction on the winnings.
Impact of 28% GST on online gaming :
1.Effect on the gaming industry:
According to experts, the new GST tax policy could have various effects on online gaming. Some of them are the following.
- Due to the increase in the burden of tax, gaming companies would find it difficult to invest in new research, innovation, and business expansion, leading to a loss of job opportunities.
- The new GST on online gaming will lead to the rise of unlicensed partners. These illegitimate platforms will pose risks for users, and the government will lose its revenue.
- Because of the new tax policy, there is a higher chance that more gaming companies will move overseas, where supportive tax policies exist, and this will also discourage new players from entering the gaming industry.
2.Effect on the consumers :
When the new GST tax rule becomes applicable, the users of gaming platforms will be required to pay 28% GST on the bet value along with the platform fee, and 30% TDS on their winnings. As a result, the users’ revenue will decrease. This may lead users to move to unlicensed partners or offshore platforms, which causes higher risk.
3.Impact on Stocks :
After the Indian government announced a 28% tax on online gaming platforms on July 12th, the shares of online gaming companies, such as Nazara Technologies, OnMobile Global, and Delta Corp, have gone down in value.
The shares of Nazara Technologies went down by 14.2%, and the shares of OnMobile Gaming, another firm, also declined by 8.9%. Both of these companies later recovered slightly. However, Delta Corp experienced a 10% drop in its share price and reached the lower circuit.
4.Impact on FDI :
The new GST on online gaming will harm Foreign Direct Investments (FDI) in the online gaming industry in India. Moreover, the already $2.5 billion worth of FDI investments made in India will suffer in terms of growth and development. The upcoming GST rule will also deter new
FDI investments.
To conclude, the fact is that the new GST policy will negatively affect the online gaming industry. Nonetheless, the Government is imposing heavy taxes to protect young people from online gaming addictions.
