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Online gaming companies, associations write to Centre to reassess 28% GST: Report

Online gaming companies, associations write to Centre to reassess 28% GST: Report

According to a report by The Economics Times, more than 130 online gaming companies and industry associations have collectively written an open letter to the Indian government, requesting a reconsideration of the proposed 28 percent Goods and Services Tax (GST) on the full face value for online gaming. The companies argue that this tax proposal will impede the growth of the thriving industry.

In the letter addressed to the government, the companies expressed their concern that implementing the GST on the full deposit value would have a detrimental impact on the industry’s growth. They emphasized that this move could potentially lead to severe consequences, including the closure of micro, small, and medium enterprises (MSMEs) and startups that lack sufficient capital reserves to withstand such a significant tax hike.

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The letter was endorsed by several companies operating in the online gaming sector, such as Nazara Technologies, Mobile Premier League (MPL) and its subsidiary Mayhem Studios, Gameskraft Technologies, and WinZO Games.

In addition to these companies, various industry associations representing the gaming sector, including the All India Gaming Federation (AIGF), E-Gaming Federation (EGF), Federation of Indian Fantasy Sports (FIFS), and All India Game Developer’s Forum (AIGDF), have also affixed their signatures to the letter.

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AIGF represents notable companies in the online gaming sector, including MPL, Zupee, and Paytm First Games. On the other hand, EGF represents companies such as Games 24×7 and Junglee Games. FIFS, on the other hand, is supported by platforms like Dream11 and Fantasy Akhada.

During the 50th GST Council Meeting held on July 11, the GST Council implemented a 28 percent tax on online gaming, horse racing, and casinos. The effective date for the imposition of this tax on online gaming will be announced once amendments to the GST law are made.

Expert insights: How does one upskill their talent on an online gaming ...Finance Minister Nirmala Sitharaman clarified that the decision to impose a 28 percent GST on online gaming, casinos, and horse racing was not intended to kill the industry. Rather, it was made based on the moral perspective that these activities cannot be taxed at the same rate as essential commodities.

As per the GST Council, gamers will be required to pay Rs 28 for every Rs 100 spent on an online game, regardless of whether the game is based on skill or luck.

The companies expressed their concern that the 28 percent GST on the full value of online gaming transactions would discourage potential investors, both domestic and foreign, from considering the online gaming sector as an attractive investment opportunity.

The impact of this tax imposition extends beyond the gaming industry alone and could have broader implications for the entire Indian startup ecosystem. Many financial institutions invest across various sectors, and a favorable regulatory environment plays a crucial role in attracting foreign direct investment (FDI). The letter emphasized that the decision to impose such a tax could jeopardize the current investments of over $2.5 billion and hinder the flow of fresh capital into the gaming industry and other sectors.

The online skill gaming sector in India currently holds a valuation of $20 billion and generates annual revenue of $2.5 billion, as stated by the companies. They anticipate that the industry will experience a compound annual growth rate (CAGR) of 30 percent and reach $5 billion in revenue by 2025.

According to an EY-FICCI report, the revenues of the online gaming segment in India have risen from Rs 79 billion in 2020 to Rs 119 billion in 2022, with expectations of reaching Rs 153 billion by 2024. The report also highlights the significant increase in the number of paying gamers, estimated to be 95 million in 2021.

Despite criticism from experts and entrepreneurs, Revenue Secretary Sanjay Malhotra stated that the decision to impose a 28 percent tax on funds collected by online gaming companies would not be subject to further consultation or early review. However, some industry figures expressed concerns about the impact of the tax.

Ashneer Grover, a former Shark Tank judge and founder of Crickpe, voiced his belief that the tax would severely harm the real money gaming industry. Roland Landers, CEO of the All India Gaming Federation, argued that the decision disregards decades of settled legal jurisprudence and unjustly equates online skill gaming with gambling activities. Ankur Gupta, Practice Leader – Indirect Tax at SW India, predicted that the tax could result in several notices and legal disputes for Indian players.

Nazara Technologies, on the other hand, stated that the decision would have minimal impact on its revenue, as the tax would only apply to the skill-based real money gaming segment of its business. This segment contributed a moderate 5.2 percent to its FY23 revenue.

Following the announcement of the tax, shares of gaming companies such as Nazara Technologies, Delta Corp, Zensar Technologies, and OnMobile Global experienced a decline in their stock prices, ranging from 1 to 20 percent on July 12. Delta Corp even hit the lower circuit limit of 20 percent at Rs 197.45. However, some of these shares showed signs of recovery later in the day.

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