Almost 130 online gaming companies and industry bodies, including Nazara Technologies, WinZo Games Pvt Ltd, Gameskraft Technologies, All India Gaming Federation (AIGF), and E-Gaming Federation (EGF) have appealed for reconsideration of the recommendations of the Goods and Services Tax (GST) Council to impose 28% tax on the full face value of online gaming.

The online gaming companies and industry bodies have jointly signed a letter and said that it will ‘reverse the growth trajectory’, a copy of which has been seen by businessline.

“The proposal to charge GST on the full Deposit Value will reverse the growth trajectory of the industry. This would potentially have devastating implications (including shut down of businesses) for MSMEs and start-ups that may not have the capital reserves to withstand such a sharp tax increase. Further, this decision will encourage illegal offshore gambling operators, drive Indian users to them, and ultimately lead to neither optimal tax collection nor the growth of the legitimate industry,” they stated in the letter.

Also read: BL Explainer: Can online gaming companies survive the 28% GST?

AIGF represents companies, such as MPL, Zupee, and Paytm First Games, EGF represents companies, including Games 24x7 and Junglee Games. The Federation of Indian Fantasy Sports (FIFS) is backed by platforms, such as Dream11 and Fantasy Akhada, in addition to a dozen other fantasy sports operators.

The letter stated that online skill gaming, with a $20 billion enterprise valuation, $2.5 billion in revenue, and $1 billion in annual taxes, is set to grow by 30% CAGR to reach $5 billion in revenue by 2025. The total number of Indian online gamers grew from 360 million in 2020 to more than 420 million in 2023.

India’s gaming industry attracted FDI of about $500 million between 2014 and 2020, and more than $1.5 billion between January 2021 - June 2022, the letter stated.

“The implementation of the recommendation of the GST Council will result in an unprecedented 400% - 500% increase in GST burden, which the industry will have no choice but to pass on to 400 million Indians,” the letter stated.

Also read: Editorial. GST Council may have erred in its policy on gambling

The signatories also said that the imposition of GST on full value would ‘debilitate potential investors, both domestic and foreign, from considering the online gaming sector as a viable investment destination.’

“The imposition of GST on full value would debilitate potential investors, both domestic and foreign, from considering the online gaming sector in India as a viable investment destination. It may be noted that the impact will not only be on attracting fresh capital in gaming but would have a far wider impact on the Indian start-up ecosystem as a whole, as the majority of these financial institutions invest across sectors and a favourable regulatory landscape is one of the single most important drivers for FDIs. In addition, the current $2.5 billion-plus in investments is at stake basis this decision,” the letter stated.

It also said that it would lead to job losses as it employs about 1 lakh people through engineering, marketing, design, and research jobs among others. Additionally, it also supports lakhs of content creators and game streamers who belong to Tier 2 to Tier 5 cities. The growth projections of the industry envisage more than 5 lakh new jobs over the next 5 years.

Meanwhile, Rajeev Chandrasekhar, Minister of State for Electronics and IT has said that “Online gaming is an important segment, but wagering and games of chance have increased cases of user-harm and money laundering. The GST Council’s decision to levy taxes on online gaming is a well-thought-out preliminary measure. After putting a regulatory framework in place, MeitY will seek consideration separately for games of skills and that for harmful games that involve wagering.”

Related Topics
comment COMMENT NOW