India’s online gaming sector is set to reach a $ 2 billion valuation by 2023, creating employment, media interest and a growing tax potential. A closer look at indirect taxation regimes reveals that national-level GST rates might end up stifling the gaming industry and that a more flexible approach to GST imposition is needed.
Online Gaming Still Growing Faster than Ever
India’s online gaming sector was estimated at more than a billion dollars a year ago, and had already doubled its size since 2016. Despite (and because of) post-pandemic changes to the way people access entertainment and consume content, it is expected to reach $ 2 bn in 2023, considering only the so-called “rake fees” collected by gaming operators.
The All India Gaming Federation (AIGF) has recently teamed up with Ernst and Young (one of the Big Four global accounting firms) to investigate the long-term effects of the Goods and Services Tax regime (GST) on the online gaming industry. This kind of indirect taxation aims at creating a common market within the Union, with uniform and updated tax rates.
Entertainment and recreation services and luxury goods are all requested to add 28% on top of net sales prices, altering considerably the demand and commercial logic for some sectors.
The Bharat online gaming market is currently the fourth largest globally, and its projected growth is expected to bring an even higher visibility to the sector. Online gamers are expected to grow from roughly 400 million in 2021 to 510 million a year later. There are over 400 gaming studios and tech startups working in the field and maintaining a fertile business ecosystem.
Those who play online casino in India do not think immediately about the indirect taxes they pay. Despite the fact that gaming is one of the largest segments in Media and Entertainment – and the only one growing through coronavirus restrictions – industry heads are starting to feel the burden of high GST and the choices it leaves them with.
A Player’s Viewpoint – Little to Think about if You Can Afford It
Income tax laws in India are quite clear on earnings from online casino games, be it gambling or casual skill gaming. With the exception of some surcharges for the bigger jackpots (and health and education cess, naturally), gaming income is taxed at 30%.
But if all entertainment and related services, including online, are hiked by 28% GST, the final price for playing some of our favourite games might be too high to begin with. Lottery operators and retailers have repeatedly complained that they are losing revenue because of bad sales and more reluctant customers, ever since the GST was imposed on top of lottery ticket prices.
In the end, however, players do not think much about how those prices are formed. The indirect taxes affect the amount they put in, and it also decreases the rate of their return. But consumers have little to calculate or think about if the price to pay for playing still seems reasonable.
The Operators’ Viewpoint – Tough Choices and Some Suggestions
Game providers and operators had two choices, on the other hand: Passing the GST amount onto consumers or lowering premiums and jackpots in an attempt to keep low entry fees.
For gaming platforms operating on “rake fee” or “freemium” models, the new taxation is actually regressive. Even at low fees and slow add-on sales, the GST calculated onto turnovers has to be transferred back to the exchequer. This, in effect, makes certain niche markets unsustainable and threatens the rest.
The industry suggestion is that GST were not calculated onto turnovers and revenues but only on net (rake) fees and profits. AIGF and EY also suggest as plausible the “deemed credit” model or GST on the entire stake volumes but at a minimal, nominal, rate – e.g. 1.8 percent.
Given the sector’s significant potential for economic growth and job creation, the issue should not be overlooked and closely monitored. A rational GST regime for the gaming industry – and other related tech fields – might be somewhere in between, around 18%, experts conclude.
