Rethink GST or risk losing billions: India's skill-based online gaming needs a tax fix

FY24 saw a significant change in taxation policies for skill-based online money gaming. The tax rate was raised from 18% on the Platform Fee or GGR to 28% on the total deposits made by players to the gaming platforms. Given that the skill-based online money gaming sector is relatively new and developing, the higher burden of taxation has a significant negative impact on the industry.

Till now, the tax burden is being absorbed by the majority of the skill-based online money gaming platforms. However, to remain viable, they might be compelled to eventually transfer this cost to consumers, in this case the real time versus player mode might stand unviable.

"Skill based online money gaming industry has been impacted by the high levels of taxation under the GST regime. Considering the adverse effects of this taxation on industry growth, the survey of gaming companies shows that the most companies prefer that the GST should be applied to either the Gross Gaming Revenue or the platform fee for the industry to reach its potential. This adjustment would foster sectoral growth and prevent revenue leakage. This approach recognizes that the true value of taxable supply is the platform fees, which cover the services provided by the gaming platforms, while the remaining amount contributes to the prize pool for winners," as per Bipin Sapra, Tax Partner, EY India.

Increase in grey market: proliferation of illegal offshore platforms

The increased tax burden results in increased costs for the customers resulting in declining user base on certain gaming platforms under the new GST regime. An increase in price has a direct impact on the demand. As a consequence, the increase in GST cost may lead customers to move towards alternative options such as offshore or illegitimate platforms which do not charge GST or impose lower rates resulting in an increase in gambling addiction, fuelling of the offshore market and loss of revenue for the exchequer, reveals 'Impact of New GST Law On Skill-Based Online Games', a joint report by EY and the U.S.-India Strategic Partnership Forum (USISPF).

Drop in foreign investment

A higher taxation rate on the online gaming sector may reduce the attractiveness of the sector for foreign investors as well.92 In addition to the users shifting to illegal offshore betting and gambling platforms such a tax policy may also lead to movement of the gaming industry into the grey market or other favourable taxing jurisdictions which may lead to loss in substantial foreign investment and adversely impact the investor sentiments, especially on the consumer tech segment, as per the report.

The recent GST amendments with respect to skill-based online money gaming in India have sparked a negative chain reaction. The transition from taxing on the GGR/Platform Fee to levying GST on the total deposit value has significantly altered the financial landscape for both gaming platforms and players alike. This shift is coupled with the substantial increase in tax rates, including diminished revenues for gaming platforms, disincentivizing players to play the game, and even closures and layoffs within the sector. In addition, the repercussions extend beyond the gaming industry, affecting ancillary sectors and potentially deterring foreign investment, the report further highlights.

Moreover, users migrating to offshore or illicit platforms are posing challenges to regulation and revenue collection. Therefore, it is imperative to learn from global practices discussed in the next chapter and recalibrate the GST framework to foster a sustainable and thriving skill-based online money gaming ecosystem in India.