The Indian online gaming industry is wary of the new rules on GST rates and applicability that are expected for the sector, even though operators agree that a uniform rate on all gaming platforms might help the industry. Players are concerned that the highest rate slab of 28 per cent might be selected and that GST might be made applicable to prize money, and not just to the margin charged by online casino and real money gaming platforms.
According to Tarun Gupta, the founder of online esports platform Ultimate Battle, the introduction of a uniform GST rate for all gaming products will help grow the industry. On the other hand, he stresses that the current legislation places games of chance under the 28 per cent GST rate slab. At the same time, “games of skill don’t fall under the ambit of gambling and gaming laws. A GST rate of 18 percent is applicable as per the industry standards,” he adds.
Gaming platform GMNG’s product head Aakash Taneja agrees that “A uniform tax rate is the best way to move forward for ease of understanding and execution both for the platforms as well as its users.” According to Taneja, the present GST mandate lacks clear definitions and leaves a lot of room for ambiguity and misinterpretation.
“Matured and regulated gaming markets across the globe levy an average tax rate of 20 percent on revenues,” says Kishore Palakodeti, marketing manager of gaming company OpenPlay Tech, which was recently bought out by Nazara Technologies. According to him, the differentiation between skill-based and other types of gaming should be preserved.
Taneja points out that the application of the 28 per cent rate slab will render the online gaming business unsustainable and “would surely be a deterrent for future investments.” Gupta agrees, saying that such a high rate will prevent new players from entering the market because “Platform fees are normally a small amount” and only large volumes can make them effective.
Sunil Yadav, CEO of fantasy sports platform PlayerzPot, thinks that a higher GST slab will force gaming platforms to increase the fees they charge to users which will hurt the user base growths for operators.
As Yadav explains, gaming platforms collect ‘stake fees’ from all players and “Out of such stake fees, a certain portion is deducted and retained by the online gaming company as ‘platform fee’/‘rake fee’/‘gross gaming revenue’, and the balance amount is pooled under an escrow account, which is distributed as prize money to the winners. This platform fee is taxable under GST in online gaming.”
The industry is now worried that GST will become applicable not only to the operator’s margin, but to the full transaction amounts, and in effect being charged over the prize money. Pure Win and other casino and real money gaming platforms are obligated to deduct income tax at the source before paying out prizes, or the player must report and pay the income tax by themselves, and adding GST to that will be too much of a burden for the industry.
According to Aakash Taneja, “Levying GST on the entire wagered amount or prize money will make this industry financially unviable for both the operators as well the gamers”. Kishore Palakodeti agrees and adds that this “will impact the growth of the Indian gaming industry which is one of the fastest growing online gaming markets”.
Indian online gaming operators are justified in worrying over new GST rules if the example from the horse racing industry is to be considered. For the Fiscal Year of 2016-2017, before the introduction of GST, the country’s three biggest Turf Clubs, Bangalore, Hyderabad, and Calcutta, reported a total turnover of ₹3,482 crore combined, which fell to ₹1.193 crore after 28 per cent GST was levyed on the full bet amounts including prize money.
Similarly, tax revenues contributed by the three clubs together fell from ₹389 crore for FY 2017 to ₹134 for FY 2018. Even though total paid taxes grew back to ₹284 crore for FY 2019 and ₹284 crore for FY 2020, the amounts contributed to the exchequer never recovered to the level before GST levy.