The online gaming industry is currently in trend in India after the decision of the GST council to impose 28% GST.
The decision to impose GST in India on the turnover of online gaming is expected to bump up revenue collection almost 10 times.
But implying 28% tax had an adverse effect was seen in the stock market companies last week as shares of Delta Corp, Nazara Technologies, OnMobile Global, and Zensar Technologies collapsed after the GST council’s decision was announced on Tuesday.
Currently, online gaming companies pay 18% GST as platform fees or Gross Gaming Revenue, but after Tuesday’s decision now they will have to pay 28% tax on the entire amount that a user chooses to play with.
Kriti Singh, Chief of Staff and Lead Online Gaming at policy tank The Dialogue told ThePrint: As we await further clarification regarding the application of GST at its full face value, it is probable that the platforms will be required to pay a 28 percent GST on the user’s deposited amount of Rs 100, totaling Rs28. This exceeds their earnings of Rs.20.
After deducting the 28% GST on the full value, online players are currently left with a cash flow of Rs.16.40. However she mentioned that the cash flows will turn negative amount to (-Rs 8), under the same 28% GST rate on the complete value.
Kriti Singh further said “ In order to address this issue, they will need to considerably increase the platform fee, resulting in the reduction of the prize pool available for user competition. To ensure sustainability, this burden will be transferred to consumers through an elevated platform fee, and a specific percentage increase may vary based on the business models employed.
CEO of the All India Gaming Federation Mr. Roland Landers has said “The decision has the potential to completely eradicate the Indian gaming industry. The GST liability is expected to surge by a minimum of 1100 percent, resulting in the loss of numerous jobs. He believes that the only beneficiaries will be offshore-based gaming platforms that operate illegally in India, labeling them as illegal and anti-national.
Finance Minister of India Mrs. Nirmala Sitharaman reacting to the question on whether this new tax decision could kill the online gaming industry said “We do not intend to eradicate an entire industry. It is essential to sustain various businesses. The casinos in Goa and Sikkim contribute significantly to the revenue of these two small states.
Mrs. Sitharaman further said, “This decision is not solely based on our stance; it was supported by every state. Extensive deliberations were conducted before reaching this conclusion.”
Aaditya Shah, the COO of IndiaPlays, an online gaming app, highlighted that India has over 1,300 gaming startups. He emphasized that implementing a 28% GST on anything other than the platform’s gross revenue would result in negative repercussions. Imposing such a substantial tax on the industry would be incredibly unfair. This decision not only hinders the progress of the industry but also jeopardizes millions of jobs.
The Internet and Mobile Association of India an industry body, also expressed concern, stating that the implantation of this levy would lead to a significant GST increase of around 1,000 percent. This in turn would cause irreparable harm to the USD 2.5 billion investments in the online gaming startup ecosystem and potentially halt any prospective foreign direct investment
It further said “This development will deal a significant setback to India’s ambitious goal of attaining a $1 trillion digital economy by 2025.