Gaming industry lauds GoM move to tax online gaming separately

The online gaming sector is heaving a collective sigh of relief after a decision by the government’s Group of Ministers (GoM) to not mix online gaming with horse racing and gambling. In July, the GST Council decided to increase taxes on the sector from 18% to 28%, which the industry was mostly onboard with. 

At the moment, the 18% GST on the sector applies to gross gaming revenue (GGR). However, the GoM had been mulling over applying it to gross gaming value (GVV), which is the total value of the stake put in by players. In the online gaming sector, players combine their money to create a prize pool, which is then used to pay out winnings. The difference between these combined deposits and winnings makes the GRR. Industry experts and stakeholders were worried that applying 28% GST to GVV would more than double the tax the industry had to pay, and force some firms to shut down.

India’s online gaming sector is expected to grow to $5 billion by 2025, according to a report by BCG and Sequoia India. However, while unicorns like Dream Sports and Mobile Premier League have emerged, the sector remains at a nascent stage. 

The GoM was set up in May to review GST on online gaming, gambling, and horse racing. In its latest meeting, held on September 5, it decided to hold consultations with the industry and seek legal opinion before submitting a final report on levying new GST rates. It was also decided that online gaming will not be clubbed with gambling and horse racing, which would mean that taxes were levied on the full consideration.

“GoM recognizing the constitutional and legal difference and nuances of online games is very promising,” said Roland Landers, chief executive of All India Gaming Federation (AIGF), an industry body for online gaming. Landers said that the industry is hopeful that the GoM will arrive at a “progressive and constitutionally sound recommendation for rate and valuation for online gaming.” 

Rohit Agarwal, founder, and director of gaming marketing firm Alpha Zegus also said that keeping gaming separate from gambling and horse racing makes sense. “They all have different economics, operating procedures, and profit margins. It only makes sense that they are taxed as per their standards,” he said.

In July, the GOM recommended a uniform GST of 28% on all three sectors, which the industry criticized and cited various court judgments which recognized online games like fantasy sports, rummy etc. as a game of skill.

Jay Sayta, a prominent technology and gaming lawyer in the sector, agreed that the GOM’s final decision is a welcome move. However, he lamented that the delay in finalizing the report has resulted in uncertainty for the sector. He hoped that the GoM will take a decision soon and apply the tax on gross gaming revenue (GRR) as is done in most international markets.