Investors of gaming startups mail FM over GST rates

Investors including Sequoia and Kalaari Capital have signed the letter requesting that GST rates on gaming startups remain steady amidst speculation of changes.
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A group of venture capital investors have sent a mail to finance minister Nirmala Sitharaman urging her department to retain the current 18 percent GST rate on gross gaming revenue faced by gaming startups. The Indian gaming startup portfolio is currently valued at over $10 billion.

Reported by Economic Times, the letter was signed by multiple VC partners and founders, including Alpha Wave Global's Navroz Udwadia, Sequoia India's Rajan Anandan, D1 Capital Partners' Dan Sundheim, Malabar Investment Advisors' Ashish Gulati and Kalaari Capital's Vani Kola. These investors have money in companies such as Dream11, Games 24X7, and Mobile Premier League.

The core issue that the investors are pleading over is the debate around whether gaming startups should be taxed on their gross gaming revenue or the contest entry amounts. The former levies an 18 percent tax on all revenue, while the latter would potentially levy a 28 percent tax on all deposits made by users, regardless of the gaming startups' revenue.

For obvious reasons, the investors prefer the former tax rate. They have argued in their letter that a shift to the higher and more expansive tax rate would make legal gaming businesses unviable and might lead to the proliferation of illegal and unregulated black market betting opportunities for the public.

“As investors in global gaming companies, our experience suggests that both in Europe and the Americas, where most regulators have realised that on the internet, where there are no national borders, citizens of a country are best served by a regulatory regime that promotes a local gaming industry with constructive tax policy and a regulatory structure to protect users with focus on fairness and responsibility," the letter said.

Additionally, the letter also said that this move would affect the exchequer account of the central government. The investors claim that currently these gaming startups provide Rs 2,200 crore in taxes, with the number projected to increase to Rs 6,000 crore by 2025.

“A move away from gross gaming revenue and toward contest entry amount or deposits will be unfortunate and could cut short the growth path and lead to value destruction of this sector through significant reduction of investments, startups, and revenue to the exchequer,” the letter reads.

Edited by Megha Reddy