GST on Online Gaming: A Curse or a Boon?
In India, the Goods and Services Tax (GST) is applicable for all industries. The percentage differs from industry to industry. The current GST for online gaming is 18% on the Gross Gaming Revenue (GGR). GST is an indirect tax that was introduced in 2017 to replace different indirect taxes like the Service Tax and Value Added Tax (VAT). This tax is applicable on any supply of goods and services in India.
With the new finance bill announced this year, the online gaming industry is awaiting clarity on the new GST percentage from the GST council. As per the Finance Bill, players will pay 30% tax on all online games winnings. The threshold of ₹10,000 applicable prior to this rule has been removed for online games excluding crossword puzzles, lottery, and few other games. The GST council proposed a percentage of 28% on the whole prize pool amount for online skill and chance based games instead of the GGR.
The recent GST council meeting was held on 18th February 2023. It however, didn’t discuss online gaming during the meeting because Minister Conrad Sangma who chairs (GoM) the Group of Ministers, and is also the chief minister of Meghalaya, was away because of the current elections.
Taxation helps in raising revenues for the government and also curbs any illegal activities. However, crossing beyond a particular limit can be detrimental. For example, if a prize pool amount is ₹1000, and the platform fee that every player has to pay is 10-20%, the player will pay ₹100-200 as platform fee. If the new GST percentage gets applied, the online gambling site will have to pay 28% on ₹1000. This could force online gaming industries to increase their platform fees. Thus reducing the number of online games players. This step could also tempt players to play on cheaper illegal sites.
Also, with the increase in the TCS (Tax Collected at Source) for international remittance from 5% to 20%, there is a possibility people may prefer playing on overseas sites. These may not necessarily be licensed, which means player-protection may get compromised.
The online gaming industry has been a booming industry. It is expected to cross ₹15,300 crore by 2024 according to Statista, a firm into market research. A lot of employment is generated by this growing industry. But increased tax rates could hinder its growth. KPMG Tax Partner, Abhishek Jain said, ” A positive consideration for the sector with an explicit clarification of scope of betting and gambling would go a long way in settling the continued revenue investigations in the sector, certainty for this sector and growth of the online gaming space in India.”
Winzo, the multi-gaming platform’s lawyer, Abhishek Malhotra in his letter to the Prime Minister’s Office (PMO) called the proposal of increasing the GST on online gaming to 28%, “an Immediate and Existential Threat To The Entire Gaming Ecosystem.” According to him, the failure of the gaming companies to retain players because of the increased GST, will affect the government revenues in turn. He spoke about the low tax rates on the GGR followed in various countries like Singapore has it at 5%, Nevada at 6.5%, Germany 16%, Denmark 20%, and Belgium at 11%.
There are many countries who are gradually changing their tax structure. Instead of charging tax over the whole turnover they are now switching to charging tax on the Gross Gaming Revenue (GGR). Recently, the United Kingdom changed its tax policy to GGR as they wanted to stop gaming operations from moving to offshore locations. This step was taken to avoid the huge revenue losses incurred by them previously for taxing on the entire turnover. There will be an increase in the government revenues and compliance will be made easy. We hope the government of India gives its verdict on the GST on online games in favour of the industry and its people. A decision is awaited on whether the new 28% GST should be levied only on the platform fees or on the entire stake amount. Regulation of the gaming industry and its economic growth are both important, for the industry and the country as a whole.