No one said it will be an easy walk to the top, at the same time no one said that it would be a bumpy road. The online gaming industry which so far has witnessed a meteoric rise on the back of the pandemic on Tuesday perhaps met its worse fate. After much waiting, the GST Council on Tuesday finally announced its decision to levy a 28% GST on online gaming, casinos and horse racing. “Change in valuation to tax on the total consideration will cause irreversible damage to the industry, loss of revenue to the exchequer and loss of employment for lakhs of skilled engineers. Needless to add, this decision will have a chilling effect on the $2.5 billion of foreign direct investment (FDI) already been invested and jeopardise any potential investment. Further, this decision will shift users to illegal betting platforms leading to user risk and loss of revenue for the government,” Joy Bhattacharjya, director-general, Federation of Indian Fantasy Sports (FIFS).
This move also means that all 28 states need to amend their GST act including SGST and Center will have to amend CGST.
The decision is based on GoM’s (Group of Ministers) who together form the GST Council’s interim report which had proposed a 28% GST on the total amount, including the platform fee. This means that GST will be applicable to gross revenue/total prize pool. Sample this: if there is a total pool of Rs 100, an online gaming company typically charges 10-20% as a platform fee, which is Rs 10-20. In the new scheme of things as opposed to levying a tax on just the platform fee, a 28% GST will now be imposed on the total sum of Rs 100. “We believe this decision by the GST Council is unconstitutional, irrational, and egregious. The decision ignores over 60 years of settled legal jurisprudence and lumps online gaming with gambling activities. It is very unfortunate that when the Central Government has been supporting the industry – in terms of online gaming rules, clarity on TDS, among others, that such a legally untenable decision has been taken, ignoring the views of most GoM states who studied this matter in detail,” Roland Landers, CEO, All India Gaming Federation, said.
The online gaming industry had contributed Rs 4,500 crore by the way of taxes paid and is expected to pay Rs 26,000 crore in the next five years per a recent study by Deloitte and FIFS. These numbers were calculated on the basis of 18% GST. Furthermore, GST contributions from the fantasy sports industry is expected to increase by 5x in the next five years from Rs. 2,800 crore between FY18-FY22 to Rs. 14,700 crore between FY23-FY27. While the industry is expected to receive investment worth Rs 25,000 crore by CY24. According to Prashanth Rao, leader-customer strategy and design, Deloitte South Asia, a 28% GST on the contest entry fees will mean that the entire gaming ecosystem has to recalibrate the prize pool and platform fees equation. “With the depletion of the prize pool, maths on win probability and return-on-investment (RoI) on contest entry fees will change and may adversely impact volume and value of transactions,” he explained.
Furthermore, the report stated that with over 300 fantasy sports platforms (FSPs) and 18 crore users, India is the fastest-growing fantasy sports market in the world. The industry grew by 31% to Rs 6,800 crore in FY22. It is expected to touch Rs 25,240 crore by FY27. The industry is currently valued at Rs 75,000 crore. 60% of user transactions on the fantasy platforms have come in through tier 2 and tier 3 cities. For L. Badri Narayanan, executive partner, Lakshmikumaran & Sridharan Attorneys, this is an unexpected development for the industry in the light of the positive steps in TDS and self-regulatory regime. “After taxing 100% of the winning amount under new TDS regime, to tax full value of entry fee will have a significant impact on prize pool and incentive for players. The differential treatment for games of chance like casino and games of skill played in online gaming is arbitrary and will face legal challenges. The approach of the GST Council is a deviation from internationally accepted taxation practice,” he explained.
Even as the industry still grappling with the new directive, one of the biggest worries is that the industry will see a steep decline in the number of players. As per a recent survey by EPWA more than 60% of the players said that they would refrain from playing online games due to the increased tax burden. “For us professional players this seems an extremely harsh step, we anyway pay 30% on winnings and do not receive input credits, to club us with gambling and levy such high tax rates is discouraging, the government should consider our view point,” Kanchan Sharma is a pro poker player and a volunteer at EPWA, said.
Typically players between the age group of 20-29% are more engaged in online games, with a whopping percentage of 69.8%. Players below 20 years of age comprised 13.4% of the players pool, and only 2.9% are from the age group of 30-39 and above 40 years of age. Also data reveals that that the age group of 20-29 years is more engaged in playing online games, with a higher dominance of male population than female.