Similar to how a magician’s hat can vanish objects into thin air, offshore gaming platforms are walking down a similar lane in the sense that these platforms disappear and reappear time and time again. As per the 51st GST Council decision in July, if offshore gaming platforms want to operate within the country, they have to register themselves and pay 28% GST on their earnings. However, many offshore gaming platforms haven’t got their business registered in the country but continue to operate within the country and generate revenue. Additionally, these platforms have continued to erode the revenue stream of the registered online gaming platforms in India which are paying 28% GST on full value. “The situation is adversarial for the Indian gaming startups who have defined and redefined their business models to suit the regulations within the country. In this situation, offshore gaming companies are posing a threat, luring users to unclear outcomes and enticing them. We need to have strong advocacy and advisory to the consumers at large on the risk of downloading and putting money in gaming companies that are not under the purview of country’s regulations,” Sreedhar Prasad, former head- Internet business, KPMG and Internet business advisor to startups, told BrandWagon Online.
As per a report by FICCI-EY, while the online gaming market grew at 28% compound annual growth rate (CAGR) from FY20-23 to Rs 16,428 crore, it is set to witness a dip whilst still growing at 15% CAGR till FY28. The real-money gaming (RMG) segment’s revenue share is expected to dip to 75.4% by FY28, a significant dip from its earlier 83% in FY23. The report further states that RMG is expected to contribute approximately Rs 6,500-6,800 crore in direct taxes and Rs 75,000-76,000 crore in indirect taxes.
Mayday! Mayday! Mayday!
Experts believe that several of these offshore gaming platforms provide games of chance in their offerings, thus leading to a violation of anti-gambling laws within most states. While the government has taken various steps to curb the operation of such platforms within the country, offshore gaming platforms continue to run rampant despite the ban. “The government has issued orders in the exercise of its powers under the Information Technology Act, 2000, directing intermediary platforms (ISPs, TSPs, App Stores) to block access to such platforms in India. The MIB (Ministry of Information and Broadcasting) has issued several advisories to TV channels, digital news publishers, OTT platforms, and newspapers, among others, against showing direct and surrogate advertisements of betting platforms,” Tanisha Khanna, co-head- gaming practices, Nishith Desai Associates, highlighted.
Additionally, offshore gaming platforms continue to circumvent blocking orders by amending their domain names. According to Khanna, while it is mandatory for an offshore platform to complete its GST registration to operate within the country, these platforms have not registered. Moreover, these platforms have been making a dent in the earnings and revenues of the registered online real-money gaming platforms in India. These platforms continue to pay GST at 28% on full value as decided by the GST Council in July 2023. Industry experts opine that registered online real-money gaming platforms pay approximately 350-400% more in taxes, as compared to offshore gaming platforms. “Offshore gaming platforms have been masquerading as gaming platforms. They undergo complete website overhauls, including domain changes and operate from locations outside India without proper registration. Their operations are not permitted by law and could seriously damage the responsible gaming efforts by the law-abiding gaming companies,” Gaurav Kapoor, CFO, Baazi Games, highlighted.
Furthermore, the MoS (Minister of State) Finance, Pankaj Chaudhary earlier stated that no overseas gaming companies had registered in India since October on December 5, 2023.
Trouble in paradise?
While the government revised the taxation rate to 28% GST on full value from 18% GST on gross gaming revenue (GGR), tensions have increased for the online gaming industry, courtesy of the Directorate General of GST Intelligence’s (DGGI) demand for retrospective taxation. According to a report by Lumikai, the industry is valued at $4 billion. However, the tax demand from the DGGI amounts to approximately $8.9 billion. This means if the government decides to execute tax collection retrospectively, the online gaming industry will cease to exist, making it easier for offshore gaming platforms to operate in India.
Experts opine that the GST at the rate of 28% on the full value of deposits with online gaming operators needs to be revisited as tax authorities have been seeking to retrospectively implement the new GST rate by issuing show-cause notices for GST evasion to real money skill gaming operators that have been paying 18% GST on platform fees. The show cause notices have been challenged and the issue is pending before the Supreme Court and some High Courts.
According to recent media reports, a student in Hyderabad took his own life due to financial losses incurred allegedly from playing on an offshore gambling platform. The platform was reported as 1win. “Unregulated platforms do not have the same player protection measures as under the IT Rules. In addition, the high GST rate may act as an entry barrier to smaller startups and MSMEs, resulting in monopolies,” Khanna added.
Additionally, the user base would move to a platform that does not protect the interests of its users. “Illegal offshore gambling entities operate without any supervision or taxation, creating an uneven playing field. Moreover, this exposes consumers to a myriad of risks, including fraud, money laundering, and exploitation, underscoring the dangers associated with unchecked offshore illegal platforms and highlighting the urgent need for stricter enforcement to protect vulnerable individuals,” Abhishek Malhotra, advocate, TMT Law, highlighted.
As offshore gaming platforms continue to be a thorn in the side of the Indian government as well as the online real-money gaming companies registered in India, it remains to be seen who prevails as there is a real chance that the online real-money gaming industry can go extinct if the government gives the green light to retrospective taxation.