The GST council is likely to meet on August 2, to decide the implementation of GST on online gaming. The council will also decide whether the 28% GST will be levied on the deposits. The revenue secretary had acknowledged that levying a 28% tax on every game will lead to repeated taxation of the same rupee resulting in the effective tax rate going as high as 50%-70%.
There have been concerns about the effect that taxing every game will have on the industry. Earlier last week, over 30 global and Indian investors wrote to the PMO noting that taxing every game will have a cascading effect and will lead to a taxation of 50%-70%.
“Raising the GST rate from 18% to 28% in my opinion is entirely reasonable. After all, many industries including the entertainment sector, which is what I believe online gaming companies also offer, pay GST at 28%. The issue does not lie with the 28% uniform levy of GST, but the change in value from platform fee or commission to the full-face value of every game seems unjust,” Dr Deepali Pant, former executive director, RBI, said.
Levying 28% GST on every game will result in a more than 1,000% increase in GST liability. As a result almost all 1,000 Indian gaming startups, with Rs 25,000 crore in revenues, will shut down leading to loss of employment for more than 50,000 high-skilled jobs in the industry. Additionally, 40 crore Indian gamers between the ages of 18-58 across India will be burdened with this extra tax via reduced winnings.
“The government has grouped online gaming with casinos and horse racing for taxation; while this in itself may be understandable, the cascading effect resulting from taxation on full value may be the biggest damper. While the casinos are being taxed at 28% on face value with no tax on further redeployment of winnings, the effective rate of taxation for the online gaming industry is actually not 28% but works out to more than 50%,” Dhanendra Kumar, former chairman, the Competition Commission of India, said.
Also, if the GST is levied on CEA instead of deposits, it will result in cumulative GST collections reducing by over Rs 40,000 crore and overall tax collections by approximately Rs 45,000 crore over five years. Foreign Investments worth $2.5 billion and enterprise value of Indian gaming startups worth $20 billion will also be written off.