By Vikas SN
A group of around 130 real-money gaming startup founders, CEOs and industry associations have signed an open letter to the government, requesting them to reconsider the recent decision to levy 28 percent on the full value of pool deposit.
In the letter, the companies have urged for a “viable and progressive GST regime”, stating that a “predictable, stable, regulatory framework and supportive taxation policies” will allow the industry to “compete on the world stage”
Among the companies that have signed the letter include prominent real-money gaming companies Gameskraft, Mobile Premier League, WinZO, Zupee, PokerBaazi, Adda52, Head Digital Works (A23), CrickPe and industry associations All India Gaming Federation, E-Gaming Federation and Federation of Indian Fantasy Sports.
Nazara Technologies, which operates a few real-money gaming titles, is also part of the list of signatories.
These companies claim that GST Council’s decision will “reverse the growth trajectory” of the industry and would potentially have “devastating implications” for MSMEs and startups that may not have the capital reserves to withstand such a sharp tax increase, including job losses and shutdown of businesses.
Industry executives have previously warned that the new GST levy on online gaming could lead to a 1,000% increase in indirect taxes for the industry
This increase will likely be passed on to players, thereby significantly increasing the cost of each game.
“The user, who is already required to pay 30% income tax on winnings, will 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 letter reads.
The move will also lead to a “long-term unintended consequence of revenue loss for the exchequer” since the higher tax rate will significantly impact the profits generated by these platforms, which will lead to a sharp reduction in their taxes.
Real-money gaming is one of the rare sectors in India’s digital economy that currently has multiple companies with sizable profits.
Gameskraft posted a profit of Rs 937 crore on revenues of Rs 2,112 crore in FY22 while fantasy sports major Dream11 posted a net profit of Rs 142 crore on operating revenue of Rs 3,841 crore in the same period.
The move will also encourage illegal offshore gambling operators by driving Indian users to them, which will lead to “neither optimal tax collection nor the growth of the legitimate industry”, it added.
Further, the imposition of GST on full value would also “debilitate potential investors, both domestic and foreign, from considering the online gaming sector in India as a viable investment destination”
The industry has instead suggested that the government levy 28 percent GST on the platform fee or gross gaming revenue (GGR), which is similar to other technology service platforms, where only the revenue that platforms earn are considered for the purpose of levy of GST.
The signatories of the letter claim that the proposed GST rates will result in a 55% increase in the quantum of GST collected. They say that this increase will be “challenging for the industry” but they endorse it nonetheless, as they believe that it is necessary “to be a contributor to nation-building.”
“This will also provide confidence to the investors and entrepreneurs who want to ‘Create in India’ and take ‘Made in India’ games to the world and usher in a vibrant democratised game development ecosystem,” they added in the letter.
It’s worth noting that these tax rates do not apply to free-to-play and paid video games in the country, wherein the 18 percent GST rate is already included in the app sales on Google Play and Apple App Store.
The real-money gaming segment accounted for 77 percent of India’s gaming sector revenues in 2022 which stood at Rs 13,500 crore, as per a recent FICCI-EY report. These revenues are set to grow to Rs 16,700 crore in 2023 and Rs 23,100 crore in 2025, it said.
In the letter, the companies said India’s online-skill gaming industry has an enterprise valuation of $20 billion, generated $2.5 billion in revenue and paid $1 billion in annual taxes.