The Goods and Services Tax (GST) Council tasked a group of ministers (GoM) with looking into the taxation of casinos, online gaming, and races. However, the ministers are yet to arrive at a consensus regarding imposing a 28% tax on gross gaming revenue (GGR). The group chaired by Conrad Sangma, the Meghalaya Chief Minister, met at the end of July to address the gaming industry concerns and decided to impose a levy on the gross gaming revenue (the total amount online gaming companies collect before shelling out some to the winners), not on the net amount.
During their last meeting, the group of ministers deliberated on 28% GST on the whole bet amount or face value in online gaming. Nevertheless, one of the panel members cited some controversial issues concerning tax treatment, especially in casinos, and will need further deliberation.
Since online gaming companies and casinos work on varying fundamentals, sources say that the panel members also talked about having different yardsticks or approaches. In its initial report, the GoM suggested that online gaming should be levied a 28% rate on the entire consideration value without distinguishing between games of chance and skill.
A 28% GST rate is currently applied to online gambling or betting games. The games that don’t involve betting or gambling have an 18% tax rate. The commission online gaming platforms gather for every match is also levied a tax rate of 18%. The industry trusts that an increased GST rate will make the whole online gaming sector unviable.
Experts say that when the proposed levy takes effect, the industry is bound to experience a considerable fall. Considering that most online gaming platforms or companies are startups and in the cash burn stage, with profitability several years away, a 28% GST will question the whole sector’s survival. Many casino apps in India are making big bucks. And since most of them aren’t located in India and don’t pay taxes here, the proposed GST is most likely to scare off app developers wishing to relocate to India.
India’s online gaming market is the fifth largest in the world. Thanks to broader internet availability, a tech-savvy younger generation, and increased investment, the domestic market is anticipated to experience rapid growth.
In 2016, India’s online gaming was worth $543 million, which grew to $1.027 billion by 2020. It’s estimated that the market will hit $2 billion by 2023 regarding the rake fee earned (the commission online gaming operators charge). This GGR or commission is levied at 18%. This rate agrees with international tax structures and best practices that most countries follow, and it ranges between 15 to 20%.
Aditya Chopra, a managing partner at the Victoriam Legalis law firm, states that it’s essential to note that a 28% GST levy on GGR on specific gaming genres is different from a 28% GST tax on all online games in a blanket way. It’s important to note that various judicial precedents recognize the difference between games of chance and skill. Chopra said that online gaming stakeholders and legal professionals anticipate whether clarification is issued, considering the distinction and demarcating varying tax rates for games of chance and skill.
If the 28% GST is levied on the entire bet value or entry fee, it might lead to the complete crippling of the iGaming industry. Besides specific massive leagues hosted by big fantasy gaming websites and other big-scale contests, other real money formats or games wouldn’t be feasible. It would be like there’s almost no profitability road for actual money iGaming companies, resulting in business model reassessments. Most companies would either close down or shift to non-real money gambling.
The group of ministers has until the end of September to submit its report. However, it isn’t clear whether the levy rationalization report will be ready for discussion in the council meeting. Most industry players hope that the GoM and government will find ways to support them while ensuring that the exchequer’s revenue generation isn’t compromised.
If GST on GGR remains in line with international standards, it will still be viable for the exchequer and the online gaming market. However, if the proposed 28% GST is implemented, unlawful gambling and betting operators will gain the most as legitimate businesses cease to exist in the iGaming sector.