Top GST slab on online gaming could stunt industry growth, claims industry

The government’s plan to levy the highest goods and service tax (GST) slab to online gaming has the industry worrying about future growth plans. Industry experts and executives said that it could stunt the growth of online gaming firms, and force fantasy sports firms to reduce the prize pools they offer, which in turn could drive their larger users to leave the platforms in search of bigger games. The GST council is set to meet on June 28 to decide which slab will be applied.

On fantasy sports platforms, players pay a participation fee in order to enter tournaments. These fees form the total prize pool of the tournament, and the platform takes a cut of this pool as commission for providing the service. At the moment, an 18% GST is on this fee, which is called the Gross Gaming Revenue. But firms are worried that the government will instead levy the 28% GST on the gross gaming value (GGV), which is the total money deposited by users. 

“Applying GST on GGV will lead to an almost 900% increase in taxes, which will just kill the emerging gaming industry,” said Amrit Kiran Singh, advisor to All India Gaming Federation (AIGF). 

An industry expert, who requested anonymity, said that firms will eventually be forced to pass the burden onto the players. They will do so by reducing the total prize pools, which in turn will reduce the investments players make on their platforms. 

“Not only will such a decision (to levy GST on total pool instead of GGR) be catastrophic for the industry, it is also against the principles of fair taxation as well as GST rules," said Dinker Vashisht, vice president, Corporate and Regulatory Affairs at Games24x7. He added that only lottery, betting and gambling can be called ‘actionable claims’ under the GST Act.

Vashisht said that only platform fee charged by skill gaming operators constitutes value of supply. 

Actionable claims are claims that are made by creditors on any type of debt, other than a debt that is secured by mortgage or immovable property. This particular clause is also being contested by the crypto industry right now.

Experts also fear that the reduction in prize pool will drive many players to offshore betting platforms that offer fantasy sports and online rummy, poker etc. “These platforms are not regulated right now. They find loopholes in the system. Some of them even use cash agents where they credit money directly to third party wallets,” the expert quoted above, said.

AIGF’s Singh warned that it may even force some Indian gaming companies to move overseas and take the jobs and revenues outside. 

Further, Jay Sayta, a lawyer, and technology and gaming advisor, also noted that the recommendations made to the GST council by the group of ministers (GoM) earlier this month are unclear to the industry right now. He said that it’s not clear whether new GST rules will apply only to real money gaming firms, or eSports firms too, which do not deal with real-money transactions like the ones mentioned above.

Some stakeholders also said that the applying a 28% GST on online gaming as a whole is an attempt to club skill gaming with gambling, which falls under the higher GST bracket. Supreme Court rulings in India deem that games of skill, like rummy, will be considered legal and won’t amount to gambling.

Gaming industry has maintained that most of the games that they offer, including rummy, ludo or even poker, are games of skill. Court rulings on some of these games also exist in India.

Singh said, Indian gaming companies are looking at the next level of growth where they want to catch up with China and the US. “That will not happen in an unpredictable environment. What is needed is a policy environment that is supportive and predictable and will encourage people to stay and invest in the India market,” he added.