The government’s announcement of a new 28% GST levy on the full game value in online games—equating the sector with gambling—led to some commentators tweeting eulogies for the industry yesterday. We round up the main reasons as to why the gaming industry is dissatisfied with this ‘revenue-killing’ move—and why others think this ‘sin tax’ is a necessary evil.
1. The decision conflicts with games of skills v/s chance verdicts, will hurt jobs, embolden illegal sites, says the All India Gaming Federation
The government hasn’t distinguished between skill-based games (non-gambling games) and chance-based games (gambling games)—taxing both at 28%. This goes against multiple court verdicts clearly bifurcating games of skill from chance, and holding the former as legitimate non-gambling games. This hurts Indian companies only offering skill-based games; as they flounder, consumers may be forced to play on actual ‘illegal’ offshore betting platforms instead, the All Indian Gaming Federation (AIGF) argued.
“We believe this decision by the GST Council is unconstitutional, irrational, and egregious,” said the industry body’s CEO Roland Landers in a statement. “The decision ignores over 60 years of settled legal jurisprudence and lumps online skill gaming with gambling activities. This decision will wipe out the entire Indian gaming industry and lead to lakhs of job losses and the only people benefitting from this will be anti-national illegal offshore platforms. It is very unfortunate that when the Central Government has been supporting the industry – in terms of online gaming rules, clarity on TDS, etc that such a legally untenable decision has been taken, ignoring the views of most GoM states who studied this matter in detail. We hope that the Government will reconsider this recommendation and not implement it, as it will be catastrophic for the 1 trillion dollar digit economy dream of the Hon’ble PM.”
2. Will this conflict with the Karnataka High Court’s landmark GST-gaming verdict?
The GST Council’s move comes weeks after the southern court held that games of skill (offered by gaming major Gameskraft) cannot be taxed as gambling games, creating more confusion over tax liability now, noted Kartik Solanki, Partner-Indirect Tax, BDO India.
“For the online gaming industry, this recommendation would lead to a significant increase in tax incidence as compared to the position currently adopted by them, where they were paying tax only on platform fees,” Solanki said in a statement. “This will also lead to further uncertainty about the liability for the past periods, which is already a subject matter of dispute: the Hon’ble Karnataka High Court in case of Gameskraft Technologies Pvt. Ltd. had held that online games such as rummy is a game of skill and not covered under the purview of ‘betting and gambling’ and hence, the same would not be leviable to GST.”
However, reports suggest that after yesterday’s announcement, GST authorities are gearing up to levy taxes on online gaming companies, while the Indian government may even challenge the verdict at the Supreme Court.
3. Will hurt foreign investments in Indian businesses, say entrepreneur Ashneer Grover, K’taka IT Min Priyank Kharge
BharatPe founder and Shark Tank judge Ashneer Grover supported questions on the government’s motives to suddenly deal this blow to the online gaming industry, adding that this could cripple Foreign Direct Investment in the country. Or as he put it—“In future all Tech companies will be based in Dubai / Singapore. As an operator Indian regulatory risk makes no sense to put one’s own effort – forget raising external capital for it !”
You got billions in from foreign investors as FDI. Celebrated FDI inflow ! Now the same investors will apply regulatory risk discount to India and funds will dry up. Not only for online games – but across sectors. Across startups.
Also why judgement on online gaming… https://t.co/00E1yqOkoC
— Ashneer Grover (@Ashneer_Grover) July 12, 2023
Also raising the FDI point, Karnataka’s IT Minister Priyank Kharge added that “it would have been beneficial to consider this decision more thoroughly”, and to distinguish between games of skill and chance under the GST regime.
Although I personally oppose all forms of gambling, implementing a flat 28% Goods and Services Tax (GST) on the gaming industry has significant negative implications. The tax applies uniformly, regardless of whether a game relies on skill or chance. It would have been beneficial…
— Priyank Kharge / ಪ್ರಿಯಾಂಕ್ ಖರ್ಗೆ (@PriyankKharge) July 13, 2023
4. Government’s job isn’t just to raise revenues, but to disincentivise addiction, says Nagpur DCP
“You can’t let the majority of the young generation be hoodwinked into believing that they can have a profitable and sustainable lifestyle playing online games, rummy poker etc,” tweeted Nagpur’s Deputy Commissioner of Police Archit Chandak yesterday. “…WHO [the World Health Organization] even lists gaming addiction as mental illness…” he added
28% GST on online gaming, casinos etc: This slab is mostly reserved for sin goods. Seeing a lot of tweets & discussion here. A govt’s top priority apart from raising revenues to run the country is also to disincentivise such addictions as far as possible. You can’t let the…
— Archit Chandak (@archit_IPS) July 12, 2023
After the announcement, some Twitter commentators also pointed towards Dharmesh Ba’s newsletter on consumer behaviour in India—the latest edition featured an example of how gaming addiction can operate within low-income groups.
5. Will destroy revenues, violates fundamental rights to practice business, says E-Gaming Fed
Arguments similar to AIGF’s were put forth by another industry body, the E-Gaming Federation.
“This is an extremely unfortunate decision as charging a 28% tax on full face value will lead to a nearly 1000% increase in taxation and prove catastrophic for the industry,” said Malay Kumar Shukla, Secretary of the industry body E-Gaming Federation. “A tax burden where taxes exceed revenues will not only make the online gaming industry unviable but also boost black-market operators at the expense of legitimate tax-paying players, further undermining the industry’s image and capacity to survive. It is in addition to the loss of employment opportunities and the huge impact on marquee investors who are heavily invested in this sunrise sector. Furthermore, online gaming is different from gambling, and the Supreme Court and various High Court decisions have reaffirmed the status of online skill-based games as legitimate business activity protected as a fundamental right under the Indian constitution. While the industry was quite optimistic with the new developments including amendments to the IT rules and implementation of TDS on net winnings, all this will be moot if the industry is not supported by a progressive GST regime. We will wait for further details to assess the situation and evaluate our approach.”
Jaideep Vaidya, journalist at The Signal, also questioned whether the expected revenue drop will hurt gaming companies’ massive sponsorship and ad deals in India. For example, Dream11’s logo being emblazoned across the Indian cricket team’s jersey—a deathly business omen, according to some:
28% GST on gaming introduced.
The curse of Indian cricket jersey sponsor continues. pic.twitter.com/2upWfBJlfh
— Vibhor (@dhotedhulwate) July 12, 2023
6. Games 24×7 says the move runs counter to government efforts to promote the industry
Referring to the Indian government’s recently released rules to regulate the sector as well as a strategy document on the cross-sectoral promotion and growth of the gaming sector, among others, Games 24×7 said that the decision runs counter to such government efforts. The gaming major’s LinkedIn post otherwise followed in the footsteps of AIGF’s and EGF’s arguments.
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