By Amrit Kiran Singh

Even after waiting 15 months for the promised “review” on the goods and services tax hike — from 18% on service fee/gross gaming revenue to 28% on deposits – the gaming sector is confused. Today, it watches with deep distress as its business dwindles and domestic gamers flee to offshore, illegitimate gambling and betting platforms, often advertising themselves as “No-GST.”

When the 50th GST Council in July 2023, announced the hike, to be implemented from October 1, 2023, the industry was shocked and raised an outcry, prompting the Finance Minister, Nirmala Sitharaman, to promise a “review” of the increased rates after a few months of implementation. Despite the passage of 15 months, and witnessing the adverse impact on the industry, no such “review” has been forthcoming.

The huge GST increase was announced by the government with the objective of curbing negative reports of the industry such as “addiction” among young Indians and to increase government revenues from online games. Simultaneously, a review of the said policy was to be provided post studying the impact after a period. Fifteen months have passed since the policy was introduced and it has only exacerbated the migration from Indian platforms to offshore ones, without providing any protection from things like addiction, whatsoever.

The sustainability issue

The government announced that the revenues have gone up five times, a 412% jump to ₹6,909 crore in six months on increased tax rate– but the real question that remains to be answered is whether this increase is sustainable.

The answer is a resounding no because even after raising the tax rate by around 1000%, the revenue has only increased five times. After all, the offshore betting and gambling platforms neither pay GST nor provide any personal protection to customers like frauds yet continue to attract Indian gamers from domestic platforms because of the exorbitant rate on one side and “no GST” on offshore platforms.

Also read: SC stays GST notices against online gaming firms: What is the case and how much money is at stake?

Bans don’t work in cyberspace

Moreover, even Indian platforms have not passed on the inflated GST to their customers fearing even faster migration from domestic platforms. The fact is that online gaming is a borderless industry which makes it impossible to ban or block offshore platforms due to “domain farming”—several addresses leading to the same platform – virtual private networks, etc.

Getting offshore platforms to register in India is a challenge

It has been a huge challenge for the Finance Ministry to get offshore platforms to register in India. A quick look at the results over the past 16 months tells its own story. Almost none of the big offshore platforms have registered.

In one stroke, the GST hike not only erased the traditional distinction between games of skill and games of chance like gambling but also accelerated the migration of Indian gamers to offshore (primarily Chinese) platforms from domestic ones. Such has been the exodus that currently it is estimated that the offshore industry accounts for 83% of all spends from Indian players whereas the legitimate Indian industry only has 17% of the spends.

Revenue loss is not the only disadvantage or threat to the nation from high GST rates. Since offshore platforms are not subject to Indian laws and regulations, it is difficult to ensure consumer protection, fair play, and responsible gambling practices. This lack of regulatory oversight can lead to exploitation and fraud, further harming Indian users.

Offshore gambling platforms can also undermine the country’s national security and sovereignty because of the absence of data protection norms, posing risks related to data privacy and security. Additionally, unregulated financial transactions with these platforms can be susceptible to money laundering and other illicit activities.

Increased access to offshore gambling can exacerbate social issues such as gambling addiction, financial distress, and related mental health problems. The lack of local regulatory measures to address these issues can lead to severe social consequences.      

There is of course the “moral perspective” that addiction can lead to societal harm. However, raising taxes so significantly is akin to cutting your nose to spite your face. There are more effective ways to mitigate addiction, such as “timing out” players who have overindulged through the use of “smart tech” than increasing taxes so significantly.

Hence, it is vital for the GST Council to set up a review of the current taxation methodology and take urgent steps to lower the GST rates not just to bolster domestic businesses but also align regulatory frameworks to better curb the influence of unlawful betting and gambling activities. Countries like France when faced with similar issues in the past have successfully moved to taxing only Gross Gaming Revenue (GGR) to protect local industry.  It will not only foster a more sustainable and secure online gaming ecosystem in India, reduce the migration of gamers to offshore illegal betting and gambling platforms, and ensure a sustainable flow of revenues for the Indian government.

Gaming has pride of place in the Prime Minister’s vision for a developed India. The Government must support the industry in executing this vision with responsible taxation, starving the industry of capital, investments and profits will only stymie local industry and bolster the international players, the Prime Minister had warned about in his 77th Independence Day speech. The Government and the GST Council need to work with industry so that the two together can work to actually mitigate the negative aspects of this industry while fully harnessing the potential of this huge industry for creating jobs, increasing GDP and the overall benefit of India.

(The author is Founder President, Skill Online Games Institute (SOGI). Views expressed are the author’s own and not necessarily those of financialexpress.com.)