In what is being decried as a major blow to the prospects of India’s burgeoning gaming industry, the  GST Council on Tuesday announced its decision to levy a 28% GST on online gaming.  The decision is based on the interim report prepared by the Group of Ministers who together form the GST Council.

The report had proposed a 28% GST on the total amount, including the platform fee. This means that GST will be applicable to gross revenue or the total prize pool.

Roland Landers, CEO, The All India Gaming Federation, says India’s oldest gaming body believes the decision was “unconstitutional, irrational, and egregious”. The decision ignores over 60 years of settled legal jurisprudence and lumps online skill gaming with gambling activities, he remarked.

“It is very unfortunate that when the Central Government has been supporting the industry - in terms of online gaming rules, clarity on TDS, etc., that such a legally untenable decision has been taken, ignoring the views of most GoM states who studied this matter in detail,” said Landers.

Gaming is seen as one of India’s sunrise sectors, driving employment for vast numbers of youth, IT and creative professionals, from streamers and engineers to professional e-athletes. The recently published e4m- GroupM ESP Online Gaming Report 2023 states that the gaming market in India is set to witness a rise from Rs 20,800 Cr in the fiscal year 2022 to Rs 68,800 Cr in the fiscal year 2027, with a compound annual growth rate (CAGR) of 27%.

With a gaming population that already exceeds 500 million gamers, the number of mobile gamers in India is projected to increase to 650 million by 2025. Even as it has grown explosively, the industry has seen vast churn, from the banning of uber-popular (and lucrative) Chinese-owned games like PUBG to state governments arbitrarily imposing restrictions, and even blanket bans, on games and gaming in an effort to control “gambling addictions.”

Malay Kumar Shukla, Secretary, E-Gaming Federation, which includes member organisations like Games 24×7, Junglee Games, and Head Digital Works, noted, “This is an extremely unfortunate decision as charging a 28% tax on full face value will lead to a nearly 1000% increase in taxation and prove catastrophic for the industry. A tax burden where taxes exceed revenues will not only make the online gaming industry unviable but also boost black-market operators at the expense of legitimate tax-paying players, further undermining the industry's image and capacity to survive.”

Shukla added that online gaming is different from gambling, and the Supreme Court and various High Court decisions have reaffirmed the status of online skill-based games as legitimate business activity protected as a fundamental right under the Indian constitution.

While the industry was earlier quite optimistic with the new developments including amendments to the IT rules and implementation of TDS on net winnings, experts say all this will be moot if the industry is not supported by a progressive GST regime.

Mitesh Gangar, Co- Founder & Director, PlayerzPot, said the high tax burden will completely restrict the cash flow, limiting a company’s ability to invest in research, innovation, expansion or survival. “The higher burden will also put a blocker on India’s massive gaming industry and deter the new player from entering the industry. The rising gaming economy will take a big hit and trigger economic stress, restrict job creation and curtail economic growth within the sector.”

“Needless to add, this decision will have a chilling effect on the USD 2.5 billion of FDI already invested by investors and jeopardise potentially any further FDI in the sector. Further, this decision will shift users to illegal betting platforms leading to user risk and loss of revenue for the government,” added Joy Bhattacharjya, Director-General, Federation of India Fantasy Sports (FIFS).

Landers concluded, “We hope that the Government will reconsider this recommendation and not implement it, as it will be catastrophic for the 1 trillion dollar digit economy dream of the Hon'ble PM.”