The Goods and Services Tax (GST) Council’s Group of Ministers (GoM) has imposed a 28 percent tax on gross gaming revenue from casinos and online gaming. The online skill-based games are being clubbed with casinos, horse racing, lottery, betting, and other chance-based games. This, along with the increase of tax rates being imposed on the whole contest entry amount (CEA), has caused upheaval in the online gaming industry. As of now, the 18 percent GST is levied on the platform’s commission taken from the pool of money invested by the players in small amounts on skill-based games, which is known as the Gross Gaming Revenue. However, with the new tax policies being discussed, 28 percent GST can be levied on the full Contest Entry Amount. The increase in tax slab may negatively affect the gaming platforms’ profit margins and the overall gaming ecosystem.
Here is our exclusive talk with Fanclash & House of Gaming Co-Founders who happily shared their insights on the impact of tax implementation on Gaming.
Mr. Rishabh Bhansali, Co-Founder, FanClash
1. Impact on the gaming industry by imposing a 28 percent tax
The Indian gaming industry, which is previously projected to expand to a $5 Billion market by 2026, will suffer greatly from the Government’s plan to treat games of skill and chance, at parity. The industry would experience severe interruptions in cash flow due to the tax levied at a rate of 28%.
2. An increase in tax slab will negatively affect the gaming platforms’ profit margins and the overall gaming ecosystem.
It seems unfair to abolish the legal distinction between games of skill and games of chance while simultaneously taxing Indian skill games at a rate of 28 percent and doing so on the whole entry fee rather than the platform cost. The decision to treat skill and chance games equally would have a severe negative impact on the Indian gaming industry. In addition, as a result of this, skill-based online gaming firms are confronted with a double whammy that may destroy the sector and have an effect on users, enthusiasts, and the larger ecosystem including the Taxman eventually.
3. According to the FICCI-EY report, the number of online gamers grew to 390 Mn in 2021 from 360 Mn in 2020. Do you think it will impact the growing number of online gamers?
The GoM plan is anticipated to impact the overall gaming industry, players, and the government’s ability to collect taxes by driving players away from legal skill gaming establishments and into the unlicensed market. Due to the same, it will surely impact the growing number of online gamers, which is estimated to be at 390 million in 2021.
Yash Pariani Co-Founder and CEO, House of Gaming
1. Impact on the gaming industry by imposing a 28 percent tax
The government has levied the same amount of taxes on chance-based games, which technically do not require as much effort from players as esports, which require years of practice to reach a certain level. The taxation is severe, as it stifles India’s burgeoning Esports industry. Nonetheless, it is expected to grow exponentially in the coming years.
2. Increase in tax slab will negatively affect the gaming platforms’ profit margins and the overall gaming ecosystem.
An increase in the tax slab will have a negative impact on the profit margins of gaming platforms as well as the overall gaming ecosystem. The increased tax consequences will have a short-term impact on sales, resulting in a drop in revenues at first. However, once the regulatory structure has been validated, mass adoption will follow.
3. According to the FICCI-EY report, the number of online gamers grew to 360 Mn in 2021 from 390 Mn in 2020. Do you think it will impact the growing number of online gamers?
The Indian online gaming industry was valued at $79 billion in FY2021, and it has grown at an exponential rate in recent years. In FY21, approximately 10 billion INR was invested in esports. It is expected to exceed 11.5 billion by 2025.