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Challenges Faced by Online Gaming Industry with the Implementation of 28% GST Rate

GST Council Imposes 28% Tax on Online Gaming, Horse Racing, and Casinos; Industry Faces Challenges

In a significant development, Finance Minister Nirmala Sitharaman announced that the GST Council has decided to levy a 28% tax on the turnover of online gaming, horse racing, and casinos. The decision was made after a group of ministers examined the taxation of these activities and recommended the tax rate. The tax will be imposed on the full face value of bets, without differentiation based on skill or chance.

Industry experts predict that the implementation of the 28% tax rate will pose significant challenges for the gaming industry, impacting cash flows for companies. Executives suggest that the increased tax burden may lead to raised ticket prices for games.

The All India Gaming Federation (AIGF), representing companies such as Nazara, GamesKraft, Zupee, and Winzo, criticized the decision, deeming it unconstitutional, irrational, and detrimental. The AIGF believes the decision wrongly associates online skill gaming with gambling activities, jeopardizing the entire Indian gaming industry and leading to job losses.

The E-Gaming Federation (EGF), comprising Games 24×7 and Junglee Games, voiced concerns that an excessive tax burden exceeding revenues would render the online gaming industry unviable. It could also favor black market operators at the expense of legitimate tax-paying players, resulting in job losses and negative effects on investments in the sector.

Several experts argue that the proposal to tax bets in online gaming at 28% requires significant legislative amendments and may not be effective immediately. They stress the need for a distinction between games of chance and skill, calling the 28% tax rate unjustifiable and lacking rationale.

While the industry had hoped for a more pragmatic approach with GST levied at 18% on entry fees or platform charges, the GST Council’s decision to subject gaming, casino, and betting services to 28% GST on the total amount collected by service providers, including prize money distributed among players, could be a game changer. Challenges to this valuation may arise as it potentially violates provisions of the GST Acts regarding taxable supply valuation.

Industry experts and legal practitioners express concern over the impact on businesses and call for a reconsideration of the tax rate, highlighting potential violations and the potential harm to the gaming industry as a whole.

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