Why online gaming industry’s candle is burning on both ends amidst government’s ambivalence

Slated to touch $5 billion dollars in the next 3 years and being a beacon for Investments, the online skill gaming industry has played a key role in helping national growth and driving revenue for the government.

Why online gaming industry’s candle is burning on both ends amidst government’s ambivalence
In light of legal discrepancies in the suggested tax measures, industry experts have also pointed out how the industry could collapse with a valuation metric change.

By Kamalendu Bali

The online gaming industry has keenly followed the developments of the 47th GST Council meet that happened over 28-29th June. Recommendations had been made to raise the taxation rate for the online gaming industry to 28% on entire consideration value as against current 18% at the platform fee or GGR.

The decision resulting from this meeting–whether acceptance or otherwise, of the aforementioned proposal will have a business viability impact on the entire online skill gaming industry. It is critical to ensure that the decision helps the industry thrive rather than lose its footing in the country.

As per recent updates, the government has deferred the decision for around 2 weeks to further discuss the industry viewpoints. The Central government has introduced several positive measures like forming a AVGC taskforce, the Inter-Ministerial Task Force to come up with a regulatory policy, holding meetings with key online skill gaming industry players to understand the sector’s growth potential and concerns and more.

On the other hand, the Group of Ministers for GST on online gaming have associated the genre of online gaming with gambling, betting, casino and lottery, etc. This signals nothing but a negative spiral for the gaming industry. Industry players are perplexed at the lack of clarity, and their overstayed welcome in a grey area.

The genre of online gaming has been pulled to defend itself multiple times, and all its achievements and contributions to the economy are little consolation to those who continue to scrutinise it negatively. Looking at it from a legal standpoint, several High Courts and even the Supreme Court have recognised online games of skill as legitimate business activities protected under Article 19(1)(g) of the Constitution of India.

On the other hand, games of chance like lottery, gambling, betting or wagering are res extra commercium in nature and the protection and legitimacy that online skill games have does not extend to these other forms that it is being clubbed with.

An even more prominent point to note is that Article 14 of the Constitution of India clearly spells out that unequals shall not be treated equally. Therefore, online skill games have to be treated differently than other forms of games of chance like lottery, gambling and betting.

In light of legal discrepancies in the suggested tax measures, industry experts have also pointed out how the industry could collapse with a valuation metric change. Applying tax on the entire value of consideration would significantly reduce the amount of player winnings and repel player interest on legal platforms. This move could also lead to an increase in illegal platforms that contribute nothing to the exchequer, making it an unwinnable situation for everyone involved.

Slated to touch $5 billion dollars in the next 3 years and being a beacon for Investments, the online skill gaming industry has played a key role in helping national growth and driving revenue for the government. The government has even acknowledged this growth and given support to the industry. The recent developments could potentially smear ink over these efforts and the past successes of this industry.

If we study events on a global scale, for instance the cases of the UK and France–the markets in these nations tried taxing the entire prize pool but then went back to the older models of charging only the GGR. The Goa’s Industries Minister – Mauvin Godinho, who is a member of the GoM for GST on Online Gaming has taken cognizance of the industry view and said that “the industry is not against a 28% taxation rate but wants the rates to be in accordance with international practices of charging on the GGR.” Increasing tax rate is one aspect but levying tax on the entire consideration value and not the platform fee or the revenue a platform makes, could be devastating for the entire sector. a senior official at Indonesia’s Communications Ministry, said in a text message websites that have been blocked include Yahoo, PayPal and gaming sites like Steam, Dota2, Counter-Strike and EpicGames, among others.

PayPal, Yahoo’s parent private equity firm Apollo Global Management and U.S. game developer Valve Corporation, which runs Steam, Dota and Counter-Strike, did not immediately respond to requests for comment. EpicGames could not be reached for comment.

Hashtags like “BlokirKominfo” (block Communication Ministry), Epic Games and PayPal trended on Indonesian Twitter, with many writing messages criticising the government’s move as hurting Indonesia’s online gaming industry and freelance workers who use PayPal.

Pangerapan said the government will find a solution for people to withdraw their deposits from PayPal, which may include reopening access to its website for a short period, he told Metro TV.

Authorities would unblock the websites if they comply with registration rules, he said, defending the measure as protection for Indonesian internet users.

With an estimated 191 million internet users and a young, social-media savvy population, the Southeast Asian nation is a significant market for a host of tech platforms.

The author is vice president of solutions at Concentrix. Views expressed are personal.

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