Online gaming industry okay with 28% GST on gross gaming revenue and not on entry amount

Online skill-based gaming industry has okay-ed the government raising GST on online gaming to 28% from 18% only if it is levied on gross gaming revenue (GGR) and not on contest entry amount as could hit the $2.2-billion sector, say industry players.

GGR is the fee charged by an online skill gaming platform as service charges to facilitate the participation of players in a game on their platform while Contest Entry Amount (CEA) is the entire amount deposited by the player to enter a contest on the platform.

Reports suggest that the upcoming GST Council may consider imposing a 28% Goods and Services Tax (GST) on the total amount rather than the current practice of 18% on GGR.

"As an industry, we are united on our ask that GST continues to be levied on the gross gaming revenue and not on the contest entry amount. The increase from 18% to 28% GST on the gross gaming revenue already increases tax revenue for the exchequer by around 55%," Games 24x7, co-chief executive officer Trivikraman Thampy said.

While the industry will absorb this, levying the tax on the contest entry amount, will make the industry completely unviable, Thampy said, adding, the increased tax burden will have to be passed on to the consumers, leading to a ripple effect in terms of legitimate businesses losing customer base as players move to grey market and offshore gaming platforms with no tax liabilities in India.

The impact of this move

This is a lose-lose scenario for the government, the consumers, the legitimate businesses in the sector as well as any existing or potential investments that the sector attracts.

The GST Council is expected to meet on December 17, 2022, in a virtual format and the panel headed by the Finance Minister may take up agenda related to Casino, Race Course and Online Gaming industry.

It is to be noted that the 47th GST Council meeting held in June had directed that the Group of Ministers on Casino, Race Course and Online Gaming re-examine the issues in its terms of reference based on further inputs from States and submit its report within a short duration.

Another player in the space Digital Works Pvt Ltd said the industry's ask for GST on gross gaming revenue, rather than entry fees, is a crucial step towards ensuring the growth and development of this sunrise sector in India.

"Applying GST on entry fees would severely disincentivise players, who already pay a range of taxes and fees. In contrast, taxing gross gaming revenue, which is the global norm, would ensure that all players, regardless of their level of skill or success, are contributing to taxes in a fair and equitable way," said Sumanta Dey, Senior Director, Public Policy and Corporate Affairs Head, Digital Works.

Besides the negative impact on the sector's contribution to GST, he said, a high tax incidence on companies or players may end up driving players to illegal, offshore gambling apps which neither follow the laws of the land nor contribute to the economy.

Online games of skills include e-sports, fantasy games, rummy and poker or chess. Such games are either free to participate in or involve real money in the form of platform fees.