Opinion Express View on GST on online gaming: The bets are off

In its 50th meeting held Tuesday, the GST Council decided to levy a 28 per cent tax on the full face value of the bets involving online gaming, horse-racing and casinos. This is a crushing blow to the gaming industry that is growing rapidly, riding the twin waves of technology and entertainment. Unfortunately, rather than being driven by economics, moral considerations seem to have influenced the Council’s decision. Indeed, the Union finance minister said as much underlining that the council’s deliberations factored in the “moral question” of whether these activities should be taxed at the same rate as essential items. No distinction has also been made between “games of skill” and “games of chance”. Shares of Delta Corp, the casino operator which also has online operations, crashed 23 per cent, while Nazara Technologies, a digital gaming and sports firm, also tanked, recovering thereafter. This is certainly not what the emerging, fast-growing sector was hoping for.

The issue of taxation in this area has been contentious with strong differences of opinions existing within the Council. Earlier, a Group of Ministers (GOM) had suggested a levy of 28 per cent on these activities for the full value of the consideration paid, and had recommended that no distinction be made between games of skill or chance. However, with some reservations being expressed, the Council decided to review the report. Some states were in favour of taxing all three activities on the full face value, while others advocated the levy of tax only on platform fees and on gross gaming revenue for casinos. With the Council now deciding to go this particular way, the nascent industry faces a blow it will find hard to recover from.

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This despite the fact that the online gaming market in India has seen a dramatic expansion over the past few years. As per an EY-FICCI report, revenues of the online gaming segment in the country rose from Rs 79 billion in 2020 to Rs 119 billion in 2022, and are expected to touch Rs 153 billion by 2024. The country has also seen a sharp rise in new users, with the report pegging the number of paying gamers at 95 million in 2021. While there is immense opportunity for the sector to grow, the GST decision can disrupt the entire segment, dissuading both investors and users. It is unfortunate that six years after the shift to the GST regime, rather than focusing on reducing the number of tax slabs, providing stability and predictability to the tax system, the GST Council has chosen to go in the opposite direction. In a draft paper, the Niti Aayog had sought a “light touch regulatory framework” for the online fantasy sports industry and differentiated fantasy sports from betting and gambling. That’s why the GST’s hard sledgehammer needs to be cushioned, the damage it will wreak isn’t worth it.