Opinion GST council meet: Don’t treat online gaming like horse racing

As a result, the growth of various gaming sectors, including online gaming platforms, game developers, and e-sports organisers, is being stunted. Further, this decision may inadvertently encourage illegal offshore gambling operators, leading Indian users to seek alternatives outside the country. This would result in neither optimal tax collection nor the growth of the legitimate gaming industry.

The impact of this tax burden extends beyond financial implications. The industry currently employs around 1 lakh people in various roles, including engineering, marketing, design, and research. Additionally, it supports a large number of content creators and game streamers from Tier II-V cities. The potential negative impact on the industry could lead to job losses and hinder the creation of over 5 lakh new jobs in the next five years. Job opportunities that could otherwise be generated by the industry will be curtailed due to the inability of businesses to invest and scale up.

It is important to highlight that in the gaming industry, both large corporations and small and mid-sized start-ups coexist. However, for the latter, surviving under the weight of high tax rates is a daunting prospect. These smaller entities lack the financial resilience to withstand such tax burdens, leading to potential consolidation of the market and reduced competition.

Moreover, the proposed tax may increase the cost of games for users, who are already subject to a 30 per cent income tax on winnings. Unable to bear the additional cost, users might resort to black market operators, causing further revenue losses for the government.

Foreign investors seek stable and predictable regulatory environments to deploy capital in any industry, including gaming. From this perspective, the uncertainty caused by high tax slabs and the inclusion of gaming alongside betting will deter potential investors.

A balanced GST regime is crucial to ensure the continued growth of the gaming industry. Tax authorities need to discern the fundamental differences between gaming and traditional betting activities like horse racing. Unlike betting, gaming involves interactive and skill-based elements, primarily pursued as a form of entertainment rather than a mere gamble. Applying the same tax rate to gaming as to chance-based gaming overlooks the nuanced nature of the industry. Instead, a separate and more reasonable tax rate for gaming will encourage investments, foster innovation, and facilitate expansion within the sector.

Addressing tax evasion within the gaming industry requires the establishment of robust mechanisms that promote fair and transparent revenue reporting. By doing so, tax authorities can ensure tax compliance while instilling confidence in businesses to operate within a regulated framework.

The industry’s current GST rate stands at 18 per cent on the gross gaming revenue/platform fee. The proposed increase to 28 per cent would result in a 55 per cent rise in the GST quantum. To ensure the industry’s survival, players have proposed levying taxes on the platform fee/gross gaming revenue earned by the industry as a whole, similar to other technology service platforms. This approach would be more progressive and sustainable for the industry.

It is also critical to support smaller players by settling taxes based on deposits instead of imposing flat rates on total revenue. This approach will create a level playing field, enabling smaller businesses to grow, thrive, and contribute significantly to the industry’s overall development.

Besides, a balanced GST regime with reasonable tax rates specifically tailored for the gaming industry will instil confidence in foreign investors. This confidence, in turn, can unlock significant foreign direct investments, boosting the industry’s growth and further contributing to the nation’s economic development.

For the gaming industry, the ultimate saviour lies in Gross Gaming Revenue (GGR). Basing taxation on GGR, while maintaining a reasonable tax rate empowers gaming operators to reinvest in their businesses, introduce new games, and elevate the overall gaming experience for users.

A pragmatic solution may involve a 28 per cent tax on GGR, with the option to levy an additional cess if required. Striking this balance ensures fair tax collection while propelling the gaming industry forward and fostering harmonious cooperation between businesses and tax authorities.

Micromanagement by tax authorities in the gaming industry necessitates urgent attention. The industry’s growth is hindered by high tax slabs and the classification of gaming alongside traditional betting activities. To foster a thriving gaming sector, a balanced GST regime that acknowledges the unique attributes of gaming and addresses the challenges faced by smaller players is imperative.

Moreover, adopting a GGR-based taxation approach and ensuring a conducive regulatory environment will not only support the industry’s growth but also attract foreign investments. Collaborative efforts between stakeholders are crucial to create a win-win situation where the gaming industry can flourish, generating substantial economic value while ensuring fair tax compliance.

Kailasam is CEO and Gyani is Senior Director Policy and Operations at IndiaTech.org