As the government is mulling a Goods and Service Tax rate for online gaming at 28%, gaming companies believe that the higher tax regime will not only hit their business but will also be dampener for those who take part in gaming. The companies will have no option but to pass on the additional tax burden to the gamers, implying an increase in the platform fee and reduced winning amount.
Simply put, gaming companies currently charge a participation fee from the gamers which is the contest entry amount. Out of the total contest entry amount, the companies keep a 10-15% margin or fee which is called the gross gaming revenue. Now, since it is a pooled fund, the loss of one player is the gain for other and winning amount is given after tax deduction. In case, the government increases the GST, the gaming companies do not rule out increasing the contest entry amount and increase their margins. An increase in margins will also affect the winning amount, thereby discouraging players to redeploy the winning funds, industry executives said.
“If there is 28% taxation, then the companies would have to adjust their gross gaming revenues by increasing the contest amount or margins just to make up for that rate increase. Further, the increased costs would also make it less attractive for gamers to play games and redeploy their winnings for more games,” said Malay Kumar Shukla, secretary of E-gaming federation. Games 24×7, Junglee Games, Head Digital Works, etc are the members of the federation.
According to Shukla, these companies may have to increase margins by over 25% to mitigate the impact of higher GST.
Currently, skill-based gaming companies pay 18% GST on the gross gaming revenue to the government. Ahead of the 50th GST Council meeting scheduled on July 11, the government is mulling for increasing the levy to 28% on the complete contest entry amount. Further, the proposal is to charge GST uniformly across games of skill and games of chance. Games of chance involve betting as an outcome.
“There is no logic in keeping games of skills at par with games of chance. In games involving skills, the companies do not make any money apart from the platform fee, whereas in games of chance, the companies earn whenever players lose,” Shukla said, adding that for skill-based companies the government should analyse that their models will become unsustainable on higher taxes.
“We hope that GST will continue to be levied at 18% on the Gross Gaming Revenue (GGR) for online games. A progressive and predictable tax structure will foster an environment conducive to investment and business expansion that will generate sustained revenue for the exchequer ,” said Trivikraman Thampy, co-founder & co-CEO of Games24x7.
According to Thampy, a progressive regulatory and taxation structure for online gaming businesses in the country will combat proliferation of illegal and offshore gambling platforms and foster growth, innovation, and job creation.
“Levying GST on Contest Entry Amount will severely disrupt the sector, hindering capital inflow, impact growth and lead users to illegitimate, offshore platforms. Adverse taxation can also disproportionately impact start-ups, potentially leading to their closure,” said Joy Bhattacharjya, Director General at Federation of Indian Fantasy Sports (FIFS).